Business & Economy

Is Nigeria Headed For An Era Of Hyperinflation?

FDC – Based on our monthly market survey, headline inflation is projected to increase sharply by 0.79% to 14.5% in October and remain stubbornly high in Q4’20.

If our October projections turn out to be accurate, it means inflation will be rising for the 14th consecutive month. It will also be at the highest level in 33 months.

Food inflation will be the major victim, estimated to rise to 17.05%. Other sub-indices are also expected to move in a similar direction.

Advertisement

The EndSARS protest further magnified existing output challenges and supply chain disruptions as traffic flows were impeded and businesses were severely affected. This coupled with money supply saturation, higher logistics costs, CBN’s forex rationing as well as forex restriction for imported finished goods have heightened inflationary pressures.

The CBN had repeatedly held that inflation rate above 12% is growth retarding. That is why a projection of 14% could be an alarm bell for policymakers. However, the GDP numbers for Q3 are scheduled for release on November 23rd, the day the MPC meeting starts. If the numbers which do not reflect the EndSARS impact come in worse than expected, it may result in deep introspection at the MPC meeting.

FDC

Elongated ‘U-shaped’ recovery: The economic cost of the EndSARS protest disruption is estimated at N1.5trn, approximately 1.03% of GDP and 11.47% of the 2021 budget. This suggests that the economic recovery path could be longer than anticipated. Massive investment in job elastic sectors with minimal control on the pricing mechanism will serve as catalysts and would ensure a sustained ‘take-off’.

Advertisement

Spike in commodity prices: Commodity prices increased by an average of 25% in the last month as the protests exacerbated existing output constraints and supply chain disruption. About 1,800 trucks of commodities, food supply, finished goods, other raw materials and logistics enter Lagos on a daily basis. A noticeable trend during our survey was that highly perishable and seasonal commodities were severely impacted. The price of onions, palm oil and tomatoes jumped by 100%, 30.43% and 16.67% respectively.

Increase in misery level as unemployment rises: The looting and destruction of public and private properties which followed the massacre at the Lekki toll gate will increase job losses. This at a time when the cost of living is skyrocketing due to higher electricity and PMS price, means that the level of poverty will rise.

Squeezed corporate margins and lower government revenue: The EndSARS protest is expected to have both direct and indirect costs on government revenue. Government revenue is expected to fall as streams of income such as BRT buses are affected. We also expect a squeeze in corporate margins following the looting and destruction of private properties. This will in turn affect tax revenue in the coming months.

Advertisement

Average inflation rate in Sub-Saharan Africa is expected to rise to 8.1% in 2020 before retreating to 7.9% in 2021. Inflation across the SSA countries under our review is more to the upside. With the exception of Uganda, all the countries that have released their October inflation numbers recorded higher inflation. Food price movement was largely responsible for the inflation direction. Most central banks across the region left their monetary policy rate unchanged.

FDC: Inflation Outlook: Impact on Policy Decisions

The primary mandate of monetary authorities is price stability. The faster pace of increase in inflation will be a bone of contention at the MPC meeting on November 23rd. The GDP numbers for Q3 have scheduled for release on the day the MPC meeting starts. If these numbers which do not reflect the EndSARS impact come in lower than expected, it may result in deep introspection at the MPC meeting.

Advertisement
Facebook Comments
Adebayo

Adebayo is a Content Developer and website manager who loves to learn, unlearn and relearn. He has a knack for exploring the tech world. He is always thirsty to learn as the tech ecosystem evolves every day.

Recent Posts

Apple Unveils iPhone 17 Air, Slick, Slimmer Than Previous Models (PHOTOS)

Apple Inc is set to present a slimmer iPhone 17 Air model, marking a potential…

2 weeks ago

Six-Year-Old Ella Shoots, Kills American Police Officer In Mother’s Defense

A six-year-old girl, Ella, fatally shot a 28-year-old American police officer last month after witnessing…

2 weeks ago

LIRS Urges Taxpayers To Meet March 31 Deadline For Annual Tax Return Submission

The Lagos State Internal Revenue Service (LIRS) reminds all individual taxpayers, including self-employed individuals, those…

3 weeks ago

Stanbic IBTC Bank Partners Autochek To Boosts Car Ownership, Disburses N4Bn

Stanbic IBTC Bank, a prominent financial institution in Nigeria, has partnered with Autochek, an innovative…

3 weeks ago

Stanbic IBTC PMI®: Output Growth Accelerates To Fastest In Just Over One Year

The headline figure derived from the survey is the Stanbic IBTC PMI® - Purchasing Managers’…

3 weeks ago

Stanbic IBTC Bank Reintroduces Its Private Banking Offerings To Empower Nigerians Build Lasting Wealth

Stanbic IBTC Bank, a subsidiary of Stanbic IBTC Holdings and a leading financial service solutions…

3 weeks ago

This website uses cookies.