Dear Subscriber,

The NBS released its official inflation data today (September 15). In line with our forecast, headline inflation surged to 25.8% from 24.08% in July. This is the 8th consecutive monthly increase and the highest level since September 2005. A breakdown of the data showed that prices increased across board with food inflation rising to 29.34% and core inflation climbing to 21.15%.

In the last three months, inflation has been principally driven by naira depreciation, higher energy costs, money supply saturation, and other cost-push factors. In August, the naira touched a record low of N955/$, pushing imported food inflation to 20.46% from 19.79% in July. The price of diesel, a major fuel for distribution and logistics, also increased by 3.66% to N850/liter, widening the rural-urban inflation gap to 3.59%.

Nigeria needs an updated inflation basket

While it is true that inflation is increasing, the official data is not a true reflection of market reality. One reason for this, is the outdated nature of the inflation basket and the appropriateness of the sampling procedure used in the inflation survey. Ideally, the CPI basket should be reviewed every five years to capture changing consumption patterns. However, the Nigerian inflation basket was last reconstituted in 2009. Our synthetic basket shows that the average increase in the general price level is about 45%. The bigger problem is that policies based on flawed or incomplete information would lead to suboptimal outcomes.

CBN will remain hawkish

The MPC will meet on September 25-26. With inflation rising, we expect the committee to maintain its hawkish stance.

In the download and link, the FDC Think Tank analyzes the August inflation data and its impact on the economy and consumer disposable income.

Do enjoy your read…….