Nigeria’s Surging Inflation May Force CBN Rate Hike On  Raging Energy, Food Crises

The National Bureau of Statistics (NBS) on Friday, April 15, 2022, released the Consumer Price Index (CPI) data, showing that Nigeria’s Headline Inflation was pressured in March, as it rose by 15.92% year-on-year (y/y), representing a 22 basis points uptick over the 15.70% reported in February. To put it in context, this is a continuation of the prior month’s record where we witnessed an upward inflation pressure. On a month-on-month (m/m) basis, the inflation index expanded hastily by 1.74% in the period under review, representing 11bps higher than the 1.63% reported in February. This is the highest rate in five months, as the increase in food and energy prices in the midst of rising insecurity have further put pressure on the prices of goods and services.

According to the NBS, the key drivers of core inflation rate m/m were gas and liquid fuels; clothing materials; narcotics, tobacco, spirit, and wine; garments, shoes, and other footwears; public and personal transport equipment. Markedly, the core inflation index has continued to be driven by persistent FX pressures, higher energy and power costs, and supply chain bottlenecks.

Global tensions could cause MPC to hike rate first time since Sept. 2020

The Central Bank of Nigeria’s (CBN) Monetary Policy Committee (MPC) is expected to hold its third policy meeting of the year in May. The meeting comes at a time of heightened concerns about global growth amid the crisis in Eastern Europe. Although the MPC members’ personal statements which were out before the emergence of the recent domestic and global challenges – sounded dovish, however, the committee may likely take a quick hawkish decision to address the twin challenges of the uptick in inflation and energy crisis. The recent rates hike by major central banks across the globe can as well force the MPC to consider a hawkish stance to avoid or reduce the rate of capital outflow (an attendant issue when advanced economies’ central bank hikes rates) which could aggravate exchange rate pressures. Considering the above scenarios, we will not be surprised if at the end of the next MPC and members vote to raise the policy rate above the current 11.5%. Note that the benchmark interest rate has been unaltered since September 2020.

Inflation Outlook for April 2022

Based on the above developments, we expect headline inflation to maintain an upward trend in April 2022, as many companies and businesses have increased the prices of goods and services in March according to NBS. Food inflation is expected to rise amid structural challenges, and logistics and distribution bottlenecks. For core inflation, we expect it to climb further amid the heightened energy crisis. Putting the above factors together, we may likely see a 40 to 60bps increase in the headline inflation reading for April 2022 coupled with the Easter celebration and others. 

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