The NBS is expected to release the inflation data for Nigeria on November 15, 2023. Our Lagos market survey and time series model is projecting that headline inflation would spike by 1.08% to 27.8% for the month of October. If our estimate is accurate, this will be the 10th consecutive monthly increase this year, making it the highest level of inflation in 18 years (a record level).
The food basket is expected to increase by 1.21% to 31.85%. The principal commodities pushing the food index are flour, semovita, sugar, and noodles. It is noteworthy that in the last decade, the trend is for food price deceleration in October through December (Q4), which is typically the harvest season. This year, we have witnessed an aberrational movement in food prices due to the cross elasticity of demand impact of imported foods on locally produced commodities like yams, garri, beans, and cassava. An example of this phenomenon is the relationship between the price of wheat flour and yams. The price of flour has spiked by 46.88% to N47,000 per 50kg bag. At this time in 2022, the price of flour was N32,000. The knock-on effect on yam is evident in its price, which has increased by 16.7% to N3,500 per tuber.
T/bill rates Climb by 349 Basis Points (OMO)
The CBN has recently allowed the stop rate on OMO bills to rise by 349 bps to 17.98%p.a. This is expected to increase the level of national savings (marginal propensity to save) and thus help taper the rate of inflation in the medium term. In the meantime, we expect both core, food, and headline inflation to continue their rising trend even though at a slower pace in November/December. This is because the pace of Naira depreciation has slowed with a trading range of N1,150 – N1,200/$.
In the download and link, the FDC Think Tank shares its estimates for October inflation and likely policy reaction and market sentiment.
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