As the National Bureau of Statistics (NBS) is set to release the January 2024 inflation report, this week, analysts at Financial Derivatives Company (FDC) have projected that inflation rate for January 2024 May hit the 30 percent mark.
They also projected that the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) will increase rate, reports Daily Independent.
The MPC is scheduled to hold its first meeting in 2024 on February 26, six months after its last meeting.
Most analysts expect the committee to hike the monetary policy rate by at least 200 basis points to 20.75 percent.
The CBN has recently reiterated its commitment to ensuring macroeconomic stability (exchange rate & inflation). With the unrelenting rise in inflation and persistent naira depreciation, the committee is likely to tilt more towards a more restrictive monetary policy stance.
In a positive move, the 364-day treasury bill rate climbed by 7.46 percent to 19 percent p.a. at the last auction.
On inflation, they said, “Based on our market survey and econometric model, headline inflation is likely to spike further to 29.73 percent in January 2024 from December’s figure of 28.92 percent.
“If our projection is accurate (likely to be within a margin of error of ±0.5%), it will be the thirteenth consecutive monthly increase and a record high.
“Notably, all inflation sub-indices are likely to move in tandem with headline inflation.”
Whilst food inflation is expected to rise by 1.12 percent to 35.05 percent, core inflation is estimated to climb by 1.04 percent to 24.1 percent, and month-on-month inflation is projected to increase by 0.39 percent to 2.5 percent (34.5% annualised).
The foremost inflation culprit in Nigeria today is the weakened currency. In January alone, the naira lost 21 percent, touching a record low of N1,530/$. This is largely because of the lingering disequilibrium in the forex market as dollar demand continues to outpace supply.
This persistent currency depreciation has led to increased costs of imported goods such as wheat, subsequently pushing up the prices of wheat-related products like noodles, Semovita, and bread by 20.4 percent, 35.8 percent, and 14.3 percent, respectively.
Also, the prices of locally produced agric commodities such as garri, tomatoes, and pepper are on the rise, largely because of higher logistics costs and reduced supply (planting season effect).
The other inflation stoking factors include money supply growth (51%) and heightened insecurity, especially in the nation’s food belts.
The unrelenting rise in inflation is taking a huge toll on the purchasing power of consumers (it gets to a point where it affects both disposable and discretionary income), and increasing the cost of operation for businesses.
According to the World Bank, the number of poor people rose from 79 million in 2018 to 104 million in 2023.
On an annual basis, food inflation is expected to remain elevated, increasing by 1.12 percent to 35.05 percent in January 2024 from 33.93 percent in December 2023.
Nearly all commodities have experienced substantial price hikes in the last month, especially those with high import components. Prices of items such as tomatoes (25%), pepper (100%), garri (25%), beans (36%), rice (7.2%), and margarine (60%) have seen notable increases.
This can be largely attributed to the pass-through effect of the exchange rate and elevated logistics costs.
Conversely, prices of a few commodities like onions and palm oil have decreased due to the harvest season.
Core inflation, which is inflation less volatile items (food and energy) is also projected to increase by 1.04 percent to 24.1 percent from 23.06 percent in December. This increase is driven largely by naira depreciation and money supply saturation.
Inflation patterns across sub-Saharan Africa (SSA) showed a mixed trend.
Among the six countries reviewed, three (Uganda, Kenya, and Tunisia) experienced a decrease in inflation, while the other three (Zambia, Niger, and
Zimbabwe) witnessed an uptick in inflation rates in January.
Despite these variations, interest rates remained unchanged across all six countries. The slight alleviation in inflationary pressures is attributed in part to reduced energy costs. The Economist Intelligence Unit (EIU) anticipates that inflation in SSA will average 17.5 percent in 2024, marginally lower by 0.1 percent compared to 17.6 percent in 2023.
