FDC ECONOMIC SPLASH – MAY 10, 2024 [Nigerian inflation is likely to surge to 34.25% as petrol scarcity and a weakening naira take their toll]

Dear Subscriber,

Nigeria’s inflation, a significant indicator, has remained stubbornly high, with no clear sign of abating any time soon. Our estimation showed that the Consumer Price Index (CPI) will increase to 34.25% in April from 33.20% in March. This expected increase in inflation was adversely affected by the return of petrol scarcity which pushed up prices. This has the potential of distorting the estimate in the margin of error. Additionally, this high inflation trend is often observed between March and May due to the planting season. However, the headline inflation has remained elevated since February 2022 and has continued to rise throughout the first quarter of 2024.

Food inflation is expected to rise by 0.97% to 40.98%, compared to an increase of 40.01% in March. Conversely, core inflation is expected to decline marginally by 0.62% to 25.28% in April from 25.90% in March. This projection is primarily supported by the relatively stable exchange rate in April and moderating logistics costs (lower diesel prices).

Monetary tightening is likely to resume again at the MPC meeting

The sustained increase in inflation expectations will continue to be a significant consideration by the monetary authority in deciding the direction of the monetary policy rate. As the Central Bank of Nigeria (CBN) has limited tools to deliver price stability, the intention will be to keep raising rates. However, this strategy, while potentially beneficial for fixed-income investments, poses challenges for private investors seeking credit for business expansion. This crucial aspect directly impacts productivity growth, as businesses face higher borrowing costs, potentially stifling investment and innovation. Moreover, the looming trade-off becomes evident during inflationary periods, where the burden of servicing high-interest debt exacerbates economic shocks. It becomes paramount to weigh the consequences of persisting with elevated interest rates. To prevent the economy from overheating and mitigate the risk of raising poverty lines and shrinking productivity.

In the download and link, the FDC Think Tank shares its estimates for April inflation and likely policy reactions.

Enjoy your read!