More trouble for consumers as inflation is projected to hit 20.9%



Uba Group

Ahead of the announcement of headline inflation for the month of September by the National Bureau of Statistics, foremost economist, Bismarck Rewane, has said the figure will rise higher to 20.9 percent.

Inflation in Africa’s most populous nation moved up to 20.52 percent in August, marking the highest print in 17 years.

Rewane, Chief Executive Officer, Financial Derivatives Company Limited, based his prediction on a survey of major markets in the Lagos metropolis conducted by his company as well as its time series model.

But FDC noted that though the CPI is projected to rise, the pace of price increase is slowing.

“This suggests that price inflation may be approaching a point of inflection. The major causative factors propping up the price level remain the “usual suspects” i.e., a weaker domestic currency (N732/$), higher logistics costs and excess liquidity. Our study also indicates that there will be an increase in both the annual food basket (23.9%) and core (17.78%) inflation sub-indices. However, the more current indicators of the monthly inflation which measures the change in prices between the current and previous month is showing a sign of price deceleration.

“We expect the month-on-month inflation to decline by 0.26 percent to 1.51 percent (19.63% annualized). This is partly because of the impact of the harvest and consumer price resistance resulting from declining disposable income. Despite slowing Inflation in advanced economies, most central banks have continued with the tightening cycle and increasing their policy rates. In the UK for example, inflation declined by 0.2 percent to 9.9 percent in August, the first time in eleven months. But the Bank of England raised its policy rate by 50bps to 2.25%p.a. It chose to prioritize tackling inflation over the risk of a temporary recession. In the US, inflation eased by 0.2 percent to 8.3 percent in August, in a bid to clamp down inflation, the Fed has increased interest rates by 75bps three times in 2022 and is not relenting in the fight against inflation,” Rewane explained.

The MPC, at its just concluded meeting increased the MPR by 150bps to 15.5 percent p.a, cumulatively a total of 400bps in the year. The Cash Reserve Ratio (CRR) was also raised by 500bps to 32.5 percent p.a. In response to this, the Treasury bill rates have also moved upward. The one-year Treasury bill rate rose to 12 percent p. a, the 182days rate increased to 7.5 percent p.a while the 91days rate is now 6.5 percent p.a.

The aggressive move of the MPR was part of the committee’s effort to rein in the inflation rate that spiked to 20.52 percent in August and reduce capital flight. Nigerian inflation is driven more by the transmission effect of forex scarcity on prices and high cost of energy. In the last one month, the naira has depreciated by 3.97 percent in the parallel market. It traded at N704/$ at the beginning of September to N732/$ this week.