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Nigeria’s headline inflation to drop further to 21.34%

We anticipate a 0.88% drop in the headline inflation to 21.34% in July. The commencement of the harvest season in July led to a boost in output, thus pushing down commodity prices. This, combined with base-year effects and CBN forex interventions, which have stabilized the forex market, has contributed to the decline.

Our forecast points to a 0.08% month-on-month decline to 1.60% (annualized at 20.77%), alongside drops in both core inflation (22.41%) and food inflation (21.35%). This reflects lower prices for some essential commodities, including tomatoes, yams, beans, onions, pepper, garri, etc. All inflation sub-indices are expected to fall in line with the ongoing price moderation momentum.

Cost push factors remained subdued in July

The exchange rate remained relatively stable across all market segments in July, largely supported by the CBN’s interventionist strategy. Additionally, the retail price of diesel decreased marginally by 2% to N1,050/litre in July. This is expected to reduce logistics costs minimally. However, the currency could come under pressure in the coming months as the demand for forex increases for international student tuition fees, coupled with inventory restocking by traders for Christmas.

Outlook

With the commencement of the harvest season, we expect a further decline in commodity prices in the coming months. This should help ease inflationary pressures arising from increased liquidity due to higher FAAC allocations. The major risk to our projections remains security challenges in the food-producing states, falling oil prices and the hike in PMS price.

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

Enjoy your read…