The CPI report for August was released this morning, two days ahead of the MPC meeting, and as expected it slowed again to 17.01%. This is the 5th consecutive decline and a 7-month low. The ease in inflationary pressures and the spike in Q2 real GDP growth (albeit due to base year effects) will be major considerations at the MPC meeting. The doves in the MPC will be empowered to fight for a reduction in the MPR as a complement to the fiscal stimulus efforts of the FGN.
The continued moderation in inflation can be largely attributed to base year effects. This is because the rate of annual inflation in all baskets declined whilst monthly sub-indices increased. The increase in monthly inflation suggests that naira weakness in the forex basket is being transmitted into domestic prices. Most manufacturers claim they are only able to source about 10% of their forex demand from official sources. With the autonomous rate at record lows of N562/$, the blended rate has depreciated by 13.5% to N547/$ from N482/$ in June. This means that headline inflation might be approaching a point of inflection, which will translate into higher inflation in September/October.
In the download, the FDC Think Tank shares its thoughts on the impact of August’s inflation numbers on the economy.
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