Dear subscriber,

The July inflation numbers were released today, and as widely anticipated, Nigeria’s headline inflation declined to 21.88%. This is the fourth consecutive monthly decline, driven by a myriad of factors, including a reduction in PMS and Diesel costs, moderation in money supply growth and exchange rate stability. Even though the trend of four months continued, the rate of decline has slowed sharply, indicating that we can be approaching a point of inflection.

Inflation Drivers – More Transient than Structural

It is also noteworthy that month-on-month inflation rose for the second consecutive month since June to 1.98% from 1.68% (26.36% annualized). The data also shows an increase in food inflation to 22.74% from 21.97%, in spite of the harvest season. This increase was driven primarily by the reversal of export smuggling, with the harvest season effect short-lived by climate change.

The good news is that core inflation, which excludes the prices of volatile agricultural products and energy, dipped to 21.33% from 22.76%. This implies that inflation is less driven by structural factors.

The consensus opinion at this point in time is that the CBN may cut the policy rate by 25bps at its next meeting in September. However, the following factors could upend that view:

• If the price of oil falls in the global markets (currently at $66pb), the IEA is projecting that oil prices could fall below $60pb in Q4 2025,
• If inflation data for August shows an increase from its current level, the MPC will be less inclined to lower the rate

In the download and link below, the FDC Think Tank shares its thoughts on the impact of July’s inflation numbers on the economy.

Enjoy your read…