Saturday May 07,  2022/ 04:05 PM / by FDC Ltd/ Header Image Credit:  economictimes

Global inflation is at record levels, in the US it is at a 40 year high, in the UK and EU it is at a 3-decade high. So in Nigeria and Sub-Saharan Africa we expect the inflationary spiral to continue. 

Whilst official headline inflation is represented at 15.92%, the actual reality of things paints a much higher number. Our time series analysis and survey of major markets in the Lagos Metropolis, has projected headline inflation to increase again by 0.28% to 16.2%. This will be the 3rd consecutive monthly increase and the highest level in seven months, it was 15.99% in October 2021. All inflation sub-indices except for month-on-month inflation are expected to move in tandem with headline inflation. 

Central Bank chiefs Becoming More Aggressive in the Fight Against Inflation 

The rapidly rising inflation rate is forcing most Central banks in both emerging and advanced economies to adopt a tighter monetary policy stance to reign in inflationary pressure and restore some level of price stability. The most recent is the 50bps increase in the US Fed interest rates to 0.75%-1.0%, the highest hike in over two decades. The Bank of England also raised its policy rate by 25bps (fourth consecutive time). The Nigerian MPC will meet later this month. Most analysts are of the opinion that a 50bps increase will be needed to taper inflationary pressures. Food (17.35%), core (13.95%) and month-on-month (1.22%).

Month-on-Month Inflation to Fall on Weak Aggregate Demand 

Our time series model points to a possible decline in month-on-month inflation to 1.22% (15.67% annualized) in April from 1.74% (23.15% annualized) in March. This largely reflects weak aggregate demand as consumer disposable income remained squeezed. 

FG Reopens Land Borders – Any Respite for Food Inflation? 

Four of the country’s land borders have been reopened. While this move has been misconstrued by some as a political agenda, analysts are more focused on the expected economic impact particularly on food inflation. Based on our analysis, the annual composite food index is projected to increase again to 17.35% in April from 17.2% in March. In subsequent months, we expect the reopening of the land borders to boost food supply and taper commodity prices. The unintended consequences would be a possible rise in smuggling activities. 

Sub Saharan Africa – Twin Shock of Rising Inflation and High Debt 

Most African countries are grappling with the twin shock of rising inflation and high debt levels. According to the Standard Bank Group, five of Africa's heavily-indebted countries (Ghana, Kenya, Angola, Ethiopia and Zambia) are at the verge of a debt distress. This could become worse as most advanced economies adopt a tighter monetary policy stance, pushing up debt service costs. 

Of the SSA countries under our review, four recorded higher inflation rates while two reported declines. The spiralling inflation rate was majorly due to rising food prices and energy costs amid the ongoing Russia-Ukraine war. 

Despite the unrelenting rise in inflation, most African Central Banks left their policy rates unchanged, threading cautiously as economic recovery remains fragile. The IMF has revised downwards its GDP growth forecast for SSA to 3.8%.

Concluding Thoughts

The continuous rise in inflation will be a major consideration at the MPC meeting this month. The committee is likely to take the bull by the horn, increasing the MPR by 50bps to 12.0%p.a.