Dear Subscriber,

The National Bureau of Statistics released the inflation data this afternoon. Exceeding anticipated consensus and expectations, headline inflation rocketed by 2.51% to 31.7% from 29.9% in January. This is a 28-year high and is making policymakers scratch their heads. Food inflation in particular climbed by 1.8% to 37.92%, driven by sharp increases in prices of rice (35.7%), beans (17.6%), tomatoes (40%), eggs (18.4%), Turkey (25%), and others. Cost-push factors, weaker naira, and forex translation costs in the replenishment of inventory are contributing factors. Core inflation (which excludes food and energy), rose by 1.54% to 25.13% suggesting structural inflationary pressures are persistent. The situation calls for a comprehensive change of strategy in the use of monetary and fiscal measures to address inflationary trends effectively.

Monetary policy tightening most likely outcome

The MPC at its next meeting will be in a dilemma as to whether to tighten further or maintain the status quo. The most likely outcome is a 100-basis point increase in the MPR to 23.75%p.a. The real challenge will be the lag between the rate increase and the moderation in the headline inflation whilst attempting to achieve macroeconomic stability.

The FDC Think Tank analyzed the January inflation data and its implications for businesses and the economy in the download and link below.

Enjoy your read!