Dear Subscriber,
The December inflation report from NBS was released yesterday. As widely anticipated, headline inflation increased to 34.80% from 34.60%, but at a slower pace than expected. The economic consensus had projected inflation above 35%. The question, therefore, is why this slowdown from 0.72% to 0.20%? However, if this trend continues, it would be safe to say that inflation is approaching a point of inflection. This also suggests that the originally anticipated inflation moderation trajectory will be achievable.
Surprisingly, food inflation, a major culprit of inflation, fell to 39.84% from 39.93% in November—the first decline since August. Principally, the items in the basket that were affected include rice, yam, bread, fish, beer, etc. This increase was hardly impacted by the early arrival of some of the duty waiver commodities.
Month-on-month inflation, which provides a clearer picture of inflationary pressure compared to headline inflation, dipped to 2.44% (annualized at 33.51%) from 2.64%. Paradoxically, core inflation (which excludes volatile items such as food and energy) rose by 0.53% to 29.28% from 28.75%, contrasting with the slower rise in headline inflation. This disparity highlights the prominence of structural factors—such as supply chain disruptions and exchange rate volatility—driving inflation rather than transient factors.
The month of December witnessed some notable trends—a reduction in the price of petrol and some stability in the exchange rate in the forex market. Based on this decelerating trend in headline inflation, our time-series analysis suggests that all things being equal, January inflation will slow to 34.3%. This would bring some relief to policymakers who are eagerly anticipating a decline.
Inflation is expected to moderate in January. CBN is unlikely to adopt an aggressive policy stance in its upcoming meeting; instead, it is expected to closely monitor inflation trends before determining its next course of action.
In the link below, the FDC Think-Tank analyzes the inflation data for December and its impact on the business environment.
Do enjoy your read…
