Nigeria’s inflation projected to increase 30bps to 11.53% In September

Year-on-year headline inflation is expected to increase by 30bps to 11.53 percent in the month of September, according to analysts at Lagos-based research firm, Financial Derivatives Company (FDC).

 In the October Economic Bulletin released Tuesday, FDC said the rise in the inflation numbers would be primarily driven by higher food inflation as the recent floods in the middle belt region has undermined agricultural output.

If the projections come true, it would be the 2nd consecutive month of rising inflation after an 18-month consistent decline.

The month-on-month (m-o-m) sub-index is also expected to move in tandem with the headline inflation, increasing to 1.06 percent (13.48% annualized) from 1.05 percent (13.38% annualized) in August.

“The end of the third quarter is usually the peak of the harvest season. However, the herdsmen/pastoral crisis coupled with the recent floods in the food producing states muted the impact,” the FDC analysts noted.

They also noted that money supply grew by 3.58 percent in August and is expected to grow by 8 percent in September, and that even though this is below the benchmark of 10.84 percent, the impact is expected to filter through to higher prices.

According to them, the growth in money supply was partly due to the rise in the average opening position of banks, net inflows from OMO auctions, and campaign spending.

In addition, they stated that the fall in the average power output, higher logistics cost (diesel), and high borrowing cost had an adverse effect on economic activities as reflected in the decline in the Purchasing Managers’ Index (PMI). The PMI declined to 53.7 from 54.8 in August.

On peer comparison in terms of lower GDP and flat inflation across SSA, FDC noted that the average inflation rate for sub-Saharan African (SSA) countries in 2018 is expected to be approximately 9 percent.

“Three of the SSA countries under our review have released their inflation numbers for September. While Uganda and Zambia recorded a decline, Kenya’s inflation rate increased. Most of the SSA countries under our review maintained status quo at their last monetary policy meeting, with Uganda being an outlier,” they said.

The World Bank has reviewed downwards its growth forecast for the Sub-Saharan African (SSA) countries to 2.7 percent from the earlier projected 3.1 percent. This downward review was as a result of slowing growth in the region’s three largest economies (Nigeria, Angola and South Africa). Nigeria’s 2018 GDP growth was also

revised downwards to 1.9 percent from 2.1 percent.

At the last MPC meeting in September, three of the ten members in attendance voted in favour of increasing the monetary policy rate (MPR). However, the decision to hold all policy parameters was premised on the need to get more clarity on the timing and quantum of anticipated liquidity injections into the economy from pre-election spending and minimum wage.