Afrinvest Sees October Inflation Rate Climbing to 27.9%

Ahead of the consumer price index data release, Afrinvest Limited has projected that Nigeria’s headline inflation rate would accelerate by 102 basis points to 27.9%.

The statistics office is expected to release October 2023 CPI this week. Recall that in September, the headline inflation rate rose for the ninth consecutive month by 92bps to reach 26.7% year on year– the highest since 28.2% in August 2005.

The investment banking firm said like most of the prior months, the increase in the headline rate was jointly stirred by pressure on both the food (up 70bps to 30.6% y/y) and core (up 59bps to 21.8% y/y) baskets.

“We estimate a further 102bps spike in the headline rate for October to 27.9% year on year”, Afrinvest said in its macro update sent to investors via email.

It said despite an estimation of a modest boost to food supply due to the ongoing green harvest, the combined effect of low-base year and rising transportation costs pose significant risks to food inflation.

Analysts noted that the material depreciation of the FX rate in the month, coupled with the high price of Premium Motor Spirit (PMS) and Diesel (AGO) amid a surge in global crude prices, is estimated to have further strained the core basket.

Hence, the firm said it forecasted the headline inflation to increase by 2.2% m/m (September: 2.1%), to reach a 12-month average of 2.1%. This monthly inflation print implies an annualised consumer inflation rate of 23.4% vs 22.8% in September.

“In our view, taming the spiralling inflation scourge would require a simultaneous deployment of harmonised supply and demand side strategies.

On the demand side, the CBN under its new management team must rein in the growth of money supply – M3 grew 40.1% annualised in September compared to the annualised real output growth of about 2.5% in the same period.

“The lag effect of robust liquidity management should be positive for taming inflation. Also, market rates must be allowed to clear at a level high enough to incentivise investment and savings in a high inflation-battered environment.

“In addition, fiscal spending must be more tilted towards value-creating capital spending as against consumption-focused recurrent needs.

“On the supply side, the quick win would be to ease restrictions on food imports in the form of lesser tariffs while a more long-term approach would be to tackle the structural issues that affect food supply, especially security, transportation, and logistics!, Afrinvest posits. AfDB Ready to Disburse $618m to Nigeria For Digital and Creative Enterprises