FDC ECONOMIC SPLASH – January 09, 2025 [Re: Headline inflation to hit 35.30% – Despite consumer resistance]

Dear Subscriber,

The headline inflation report for Nigeria will be published on Wednesday, January 15. Our Lagos retail market surveys show that inflation will jump by 0.70% to 35.30%.

This is even after a highly symbolic reduction in petrol price by 12.2% to ₦935/litre and exchange rate stability at the parallel market at ₦1,665/$. However, the stability of the exchange rate and the reduction in the price of petrol have not had a knock-on effect on the general price level. If anything, it will lead to flatlining. Monthly inflation is expected to rise to 2.82% (annualized at 39.69%) from 2.64%.

Our food inflation forecast shows an increase to 40.12% from 39.93%, even as global food prices declined by 2.1% in 2024, according to the Food and Agriculture Organization (FAO).  Further corroborating this trend, the EIU has projected that global food commodity prices will drop by 4% in 2025. Also, we project that core inflation (which excludes volatile items like food and energy), will climb to 29.25%.

Income constraints fueling customer resistance      

Interestingly, early signs of high customer resistance are beginning to emerge as consumers grapple with income constraints. Retailers report slower demand for goods and services, underscoring the growing disconnect between rising prices and stagnant incomes. This indicates that external factors (e.g., cost-push inflation) drive the price increase, rather than strong consumer demand.

Nigerians are broke after Xmas

Detty December is the month when merry-making Nigerians spend more than they earn. We expect aggregate demand for consumer goods will fall in January followed by prices. Also, the January school fees effect will be another blow to the consumer’s wallet.

MPC likely to hold rates in February

Despite the anticipated rise in December inflation, driven by seasonal aberrations, the MPC is more likely to maintain its stance in the next meeting. The MPC has rescheduled its meeting—originally slated for January 27-28, 2025—to February 17-18. This postponement allows them time to receive the January inflation numbers, which will influence their decision. If January inflation moderates, they will likely hold rates. In so doing, the CBN will be signaling to markets that interest rates have reached their threshold.

The FDC Think Tank shares its estimates for December inflation and the likely policy reaction in the download and link below.

Enjoy your read!