The Steam is Sizzling Out - Inflation To Continue Its Upward Trajectory In October

Proshare

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.


Proshare Nigeria Pvt. Ltd.

 

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.

 

Proshare Nigeria Pvt. Ltd.

 

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.

 

Proshare Nigeria Pvt. Ltd.


Related News

  1. October 2019 Macro-Economic Update - Sluggish FPI Flows But CBN Maintains The Balance
  2. Ain't No Such Thing As A Free Lunch - LBS Executive Breakfast Session - November 2019
  3. Nigeria's Foreign Minister Onyema, Lists Four Conditions For Reopening Borders
  4. FG To Extend Border Closure Till January 31,2020
  5. Nigeria: Revenue Problem Or A Debt Crisis?
  6. Nigeria's Total Public Debt Stood At N25.70trn in Q2 2019 - NBS
  7. Inflation Succumbs to Border Closure and Money Supply Growth - Spikes to 11.24%
  8. Border Closures Begin to Take Toll on Prices
  9. #NES25:Nigerian Governors Forum Adopts Peer Review Mechanism, Mulls Regional Economic Corridors
  10. Effects of Closing The SEME Border
  11. Headline Inflation Increases By 11.24% YoY In September 2019; 0.22% Higher Than August 2019 Rate
  12. Inflation Set to Buck its Declining Trend
  13. Headline Inflation Increases By 11.02% YoY In August 2019; 0.06% Lower Than July 2019 Rate
  14. August 2019 Inflation Set to Inflect Upwards By 0.07% To 11.15%
  15. Headline Inflation Increases By 11.08% YoY in July 2019; 0.14% Lower Than June 2019 Rate

Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.
READ MORE:
Related News
SCROLL TO TOP