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Headline inflation rears its ugly head

Nigeria’s headline inflation reversed its downward trend for the first time in three months. The index increased by 0.22% to 11.24% in September. All other sub-indices and baskets moved in tandem with headline inflation, making it the first time in 23 months that all inflation sub-sets moved in an upward direction. This indicates that the inflation this time was driven by cost-push and shortage-driven factors. This spike is partly attributable to a rise in the food index to 13.51%. The increase in food prices is partly – due to the closure of the Seme border as well as broad money supply (M2) growth of 2.87%. More disturbingly is the rise in the month-on-month index to 1.04% (13.25% annualized) from 0.99% (12.54% annualized).

Demand pull factors (waiting in the wings)

Analysts suggest that the increase in the September headline index could be the beginning of a trend. This is due to expectations of an increase in aggregate demand (Christmas stockpiling and payment of minimum wage) in the coming weeks.

Hobson’s choice for monetary policy in November?

With expectations of an upward trend in the headline index in the coming months, the MPC might be left with no other choice but to resume the tightening cycle. This will be a very difficult decision especially if growth is tepid and unemployment is soaring.

In the publication, the FDC Think-Tank analyzes the inflation data for September and its impact on the economic policy environment.

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