The Rate of Inflation and the Limitations of Monetary Policy

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Thursday November 25, 2021 / 08:35 AM / by FDC Ltd/ Header Image Credit:  Pharmaceutical technology

 

The monetary policy committee held its last meeting for 2021 yesterday and maintained status quo on all parameters. In the last 4 years, the MPC maintained status quo 89.29% of the time. Even though the market anticipated this outcome, this time more than ever, the decision was considered a prudent and wise move. 

Policy makers had been caught in a trilemma of macroeconomic choices in a period when Nigeria does not have the luxury of time. With the 2023 general elections only 400 days away and in the words of Maya Angelou, Nigerians are "hoping for the best, prepared for the worst, and unsurprised by anything in between".


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It's all about inflation! inflation!! inflation!!!

Rising inflation is now a global and regional problem - US (6.2%), Eurozone (4.4%), Ghana (11%), South Africa (5%) - yet in Nigeria, inflation is reported to be slowing. Analysts are of the opinion that the numbers may not reflect market conditions. Some are more concerned about the divergence between anecdotal and empirical data. Our synthetic Lagos basket of selected items, for example, shows that prices have surged by an average of 94.7% in the last 12 months as compared to the average of the national basket (15.99%). Whilst policy makers are determined to combat price inflation, consumers are caught between inflation psychology and inflation expectations.


You can't clap with one hand - A lesson from Ghana

For the first time in six years, the Bank of Ghana increased its benchmark interest rate by 100bps to 14.5%pa, in response to rising inflation and a weaker Cedi. At the next Nigerian MPC meeting in January, we believe that the committee could take a cue from the Sub-Saharan African region and could increase interest rates if inflation spikes again. This could also help to preserve the value of the naira in the foreign exchange market. The naira had lost 15.94% between November 2020 and November 2021 from N483/$ to N560/$.

In the slides and video link below, Bismarck Rewane gives an in-depth analysis of the MPC's decision and its impact on consumers disposable income and the strength of the naira in the forex market. 


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Related News on Monetary Policy

  1. CBN Communique No. 139 of the MPC Meeting - Nov 22-23, 2021
  2. As Expected, MPC Maintains Status Quo at the End of November 2021 MPC Meeting
  3. Pre-MPC Note: To Maintain Status Quo?
  4. The CBN's Sizeable Role in PSCE; Lending Increased by 13.8% YoY to N33.84trn
  5. No Change in the MPC's Stance
  6. Bank's Credit to the Private Sector Rises as Economy Recovers
  7. Personal Statements by the MPC Members at the 138 MPC Meeting of Sept 16-17, 2021
  8. Steady Growth in PSCE; Grew by 9.8% YoY in August 2021 to N33.4trn
  9. How to Stabilize the Naira - Ayo Teriba
  10. CBN Communique No. 138 of the MPC Meeting - Sep 16-17, 2021

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Related News on Inflation

  1. Nigeria's Inflation Drops to 15.99%, the Largest Decline in Seven Months
  2. Headline Inflation Slows to a 10-Month Low of 15.99%
  3. Headline Inflation Increases by 15.99% YoY in October 2021 as Food Inflation Rises by 18.34%
  4. Inflation to Decline Again in October 2021 to 16.31%
  5. Inflation Maintained Its Declining Trend in September 2021 as Naira Depreciated on IEFX Window
  6. Persistent Inflationary Pressures, Stretched Pockets
  7. Inflation Falls Again to 16.63%, Raising Eyebrows
  8. Headline Inflation Increases by 16.63% YoY in September 2021, 0.38% Lower Than August 2021 Rate
  9. Recent Trend of Moderation in Inflation is Expected to Persist
  10. Inflation Projected to Increase in September 2021 to 17.2%

 

Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.

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