Dear Subscriber,

Inflation set to rise again

When the NBS releases its inflation data on May 17, we are forecasting a major spike from the current level of 18.17% to 18.77%, an increase of 0.60%. This will put Nigeria amongst the top percentile of African countries with the highest level of inflation. The average rate of inflation in SSA is currently 8%.

Our projections also show that core inflation will rise to 12.9% but month-on-month inflation will decline to 1.53% (annualized at 19.95%). The question therefore is whether inflation in Nigeria is transient, persistent or structural. Many economists argue that there cannot be persistent inflation when an economy is not at full employment. Some policy makers have attributed the current surge in inflation to output shocks and disruption to supply chain due to insecurity. Others have argued that headline inflation in Nigeria is transient and is caused mainly by money supply saturation. Our view is that when economic variables are transient for an extended period, it becomes persistent.

Insecurity – A cause or effect of high inflation

The jury is out as to whether insecurity leads to inflation as output contracts or inflation leads to insurgency. An in-depth analysis shows that inflation is highest across the Northern states – kogi (24.51%), Bauchi (22.24%) and Sokoto (20.7%).

MPC likely to resume tightening cycle this month

As we head towards the MPC meeting later this month, it is widely expected that the committee will lean towards the resumption of a tightening cycle by increasing the MPR by 0.25% as a way of protecting the value of the naira in the forex market amongst other measures.

In the download below, the FDC Think Tank shares its estimates for April inflation and likely policy reactions.

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