Nigeria’s headline inflation is estimated to increase sharply by 0.80% to 17.27% in February 2021. If this happens, it will be the highest level in 46 months. It is worth mentioning that inflation is not only moving further away from the upper band of the CBN’s 6-9% target, it is likely to impede output growth. Real GDP growth increased marginally by 0.11% in Q4’20 after two consecutive quarters of negative growth.
In the last two months, there has been a divergence between the direction of month on month and annual inflation due to the base year effects and supply shocks. The monthly price index is estimated to remain relatively flat at 1.49% (19.47% annualized) in February. We have also noticed the impact of high-powered money and the massive borrowing of the FGN via the CBN. The effect of the crowding out of private investors from the public debt market by the CBN printing money is now playing out in higher price inflation.
Nigeria at policy cross roads
This is crunch time for Nigerian policy makers as they attempt to make the pricing of financial instruments consistent with the monetary policy framework of inflation targeting. The CBN has moved reluctantly but expectedly on allowing the exchange rate move at the I & E window to bring about a level of general equilibrium in the markets. But it is still far away from achieving what is considered an efficient formula for maintaining exchange rate flexibility and achieving fiscal neutrality.
In the download and link, the FDC Think Tank shares its estimates for February inflation and likely policy reactions.
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