Dear Subscriber,

The National Bureau of Statistics (NBS) will publish its October inflation data on November 15. Based on our market survey and time series forecasting, headline inflation is expected to increase to 33.29% from 32.70% in September. Even though headline inflation is increasing, we need to be reminded that is still below the peak of 34.19% in June. If our projection is accurate, this will mark the second consecutive increase following a prior two-month decline – largely driven by the lingering effect of higher petrol prices. Noteworthy is our expectation that core and food inflation will also increase to 27.62% and 38.34% respectively. Notwithstanding the increase, we expect monthly inflation to decline marginally to 2.17% (29.47% annualized) from 2.52% in September – suggesting that we might be approaching a point of moderation.

Exchange rate-driven transmission effect on domestic prices

The currency fell to an all-time low of N1,900/$ (on February 21) in the parallel market before appreciating to N1,210/$ (on April 8) as the CBN began its interventions. In recent times, the impact of the Naira in the forex market has been profound, although it stands at N1,730 after dropping to N1,758, it has not been felt in domestic prices. The effect of the depreciated Naira on prices became more pronounced due to the base year effect, as the stronger Naira at an all-time low of N805/$ in the corresponding year, combined with an inflation rate of 27.33%, highlighted the contrast with the previous period’s weaker currency.

The MPC will closely watch the movement of the exchange rate, as it is the major driver of inflation in Nigeria. If there is an appreciation or flatlining of the Naira, it is more likely that the MPC will maintain the status quo. However, if the exchange rate were to fall further, the MPC would have no alternative but to tighten rates again.

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

Enjoy your read!