| Nigeria Economy |    1109 VIEWS  |
| Nigeria Economy | |
| 1109 VIEWS | |
 |
Friday, November 08, 2019
/6:45 PM / By FDC / Header Image Credit: FDC
Based on our survey, headline inflation is expected to
continue its upward trajectory in October. The index is estimated to soar by
0.36% to 11.60%. The factors driving inflation remain supply shocks with
underlying cost push pressures. The impact of the border closure was further
exacerbated by unusual heavy rainfall in October, which had a negative impact
on harvest.
Money supply growth also played a crucial role in
stoking inflationary pressures. M2 grew by 2.22% in September and is expected
to increase by 5% in October as banks increase lending in compliance with the
CBN's 65% Loan-Deposit-Ratio (LDR) directive. Average opening position of the
interbank money market spiked by 75.41% to N326.04bn. The month-on-month inflation
(a more relevant measure of prices) is projected to inch up to 1.06% (13.54%
annualized). All other inflation sub-indices are expected to move in tandem
with the headline inflation.
Money supply growth fuelling inflation
Money
supply has a direct relationship with the general price level. In September,
broad money supply (M2) grew by 2.22% to N27.66trn. It is expected to increase
by 5% in October as banks increase lending to creditworthy customers in
compliance with the CBN's 65% LDR directive. Credit to the private sector was
up 12.15% to N25.47trn in September.
Output parameters - PMI falls to 54.1 points
The
Purchasing Manager Index (PMI), a measure of the health of the manufacturing
sector, declined by 3.74% to 54.1 points in October. Lower output without a
corresponding fall in the supply of money could result in much money chasing
fewer goods, thus signaling heightened inflationary pressures in subsequent
months.
Peer Comparison - Inflationary Pressures Across Sub-Saharan Africa
The
inflation trend across the Sub-Saharan African (SSA) countries revealed that
inflationary pressures are beginning to mount. Of the six SSA countries under
our review, three have released their October inflation numbers, all posting
increases. The rise in inflation was bolstered by higher prices for food,
housing and utilities. Contrary to monetary easing in most advanced economies
due to global economic slowdown, trade war and geopolitical tensions, most of
the African central banks left their monetary policy rates unchanged.
Outlook
Festive
season and consumer expectation Typically, consumer prices tend to increase
towards the end of the year due to rising demand for goods and services for the
Christmas festivities. This, at a time when the border closure has created some
shortages, will further push up prices. The monetary policy committee will meet
this month. We expect the rising inflation trend to be a major consideration.
More importantly, the committee will be interested in inflation expectations as
it strives to achieve a single digit inflation rate.
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