Nigeria’s Inflation Projected to Rise for the 10th Consecutive Month to 27.8% in October 2023

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Nigeria’s headline inflation rate is projected to rise for the 10th consecutive month to 27.8% in October 2023, according to analysts at Financial Derivatives Company Limited (FDC). This projection comes ahead of the release of the country’s inflation report for October by the National Bureau of Statistics. FDC’s survey and time series model estimate a spike of 1.08% in headline inflation for October, making it the highest level in 18 years. The food basket is expected to increase by 1.21%, primarily driven by commodities such as flour, semovita, sugar, and noodles.

Key Points:

  1. Inflation Projection:
    • Nigeria’s headline inflation rate is projected to rise to 27.8% in October 2023, marking the 10th consecutive monthly increase.
    • Financial Derivatives Company Limited (FDC) utilized a Lagos market survey and time series model for the projection.
  2. Historical Context:
    • If the estimate is accurate, it will be the highest level of inflation in 18 years, reaching a record level.
    • Inflation has been on a continuous upward trend in 2023, and October is expected to continue this pattern.
  3. Food Basket Increase:
    • The food basket is expected to increase by 1.21%, reaching 31.85%.
    • Principal commodities contributing to the food index increase include flour, semovita, sugar, and noodles.
  4. Aberrational Movement in Food Prices:
    • FDC notes an aberrational movement in food prices this year, attributed to the cross elasticity of demand impact of imported foods on locally produced commodities.
    • Examples include the spike in the price of wheat flour, leading to knock-on effects on yam prices.
  5. Impact on Yam Prices:
    • The price of wheat flour has increased by 46.88% to N47,000 per 50kg bag, compared to N32,000 in the same period in 2022.
    • This has resulted in a 16.7% increase in yam prices to N3,500 per tuber.
  6. Expectations for November/December:
    • FDC anticipates both core, food, and headline inflation to continue rising, albeit at a slower pace in November/December.
    • The slower pace is attributed to a slowdown in the Naira’s depreciation, with a trading range of N1,150 to N1,200/$.
  7. Central Bank Measures:
    • The Central Bank of Nigeria has allowed the stop rate on OMO bills to rise by 349 basis points to 17.98% per annum.
    • This measure is expected to increase national savings and help taper the rate of inflation in the medium term.

Conclusion:
Nigeria’s inflation is projected to rise for the 10th consecutive month, reaching 27.8% in October 2023, according to Financial Derivatives Company Limited. The report highlights the impact on the food basket, driven by factors such as the cross elasticity of demand and price increases in commodities like wheat flour. Despite expectations for a slower pace in November/December, the inflationary trend continues, and measures by the Central Bank of Nigeria are seen as contributing to potential medium-term stabilization. The analysis provides insights into the economic challenges and inflationary pressures faced by Nigeria.

BD

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