Based on our recent survey of the Lagos commodity markets and time series model, Nigeria’s headline inflation is projected to buck its six months declining trend in September, rising to 17.2% from 17.01% in August. Our analysis also shows that both the food and non-food baskets are likely to increase in September, largely due to exchange rate pressures. Since the BDCs were shut out of the official market in July 2021, the naira has lost 15.08% at the parallel market. Manufacturers claim they were only able to source about 5-10% of their forex needs from the official window. This led to a 18.6% depreciation in the blended rate to N571.65/$ from N482/$ in June, pushing up the cost of importing raw materials and machinery. The price of flour and pasta have increased by 44.83% and 40.0% to N21,000/bag and N6,300 respectively. Also, the price of gas surged by 114.29% to over N7,500 (12.5kg), forcing consumers to switch to alternative energy sources such as firewood and charcoal (cross elasticity of demand).
MPC Likely to Increase the MPR as Inflation Reverses its Downward Trend
We expect the September and October inflation reports to be released before the MPC meeting in November. The committee will be mindful and watch the inflation trend closely. If the spike in inflation is sustained, the committee would be more hawkish in its monetary policy stance.
In the download, the FDC Think Tank shares its estimates for September inflation and likely policy reactions.
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