Ahead of the release of the Consumer Price Index (CPI) data this week, analysts at Financial Derivatives Company (FDC) have projected that Nigeria's headline inflation could slow further to 14.07 per cent in February, reflecting easing price pressures across key segments of the economy.
In January, inflation had eased marginally from 15.15 per cent to 15.10 per cent, marking the tenth consecutive monthly decline and the lowest level since November 2020. Food inflation also declined to 8.89 per cent while core inflation moderated to 17.72 per cent, the lowest level since October 2022.
FDC, in an emailed note, said its projection was based on its time-series model and a commodity market survey conducted in Lagos.
"Our projection shows that inflation will slow further to 14.07 per cent from 15.10 per cent. This anticipated moderation is driven by a relatively stable exchange rate, which led to the reduction in the prices of imported commodities," it stated.
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According to analysts, improved food supply and consumer resistance to rising prices are also expected to support inflation moderation.
"Additionally, increased food supply and continued consumer resistance to higher prices, driven by reduced disposable income, are expected to contribute to the easing of inflation. Notably, all inflation sub-indices are expected to mirror the headline inflation decline."
The analysts projected that food inflation could decline to 8.89 per cent from 10.84 per cent, while core inflation is expected to moderate to 17.72 per cent from 18.63 per cent. FDC, however, cautioned that the projections should be interpreted carefully due to emerging global uncertainties.
"This projection is largely academic and must be interpreted with caution. We need to discount these estimates given the Iran conflict started at the end of February, introducing new uncertainty into the outlook," it said.
FDC warned that the conflict in the Middle East could significantly alter the inflation trajectory in the coming months, driven by higher energy prices. FDC, in its projection, pointed out that the immediate transmission channel will be through energy costs.
Following the global shock, the price of petrol (PMS) increased by 46.9 per cent to N1,232 per litre, while diesel rose by 52.5 per cent to N1,510 per litre. "This will have a knock-on effect on commodity prices, distribution costs and overall production expenses.
"We do not know how long this conflict will last. However, if it lasts longer than two months, the ripple effect on inflation and economic activities could become severe," the analysts stated
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Looking ahead, FDC analysts noted that the global monetary policy environment could also influence Nigeria's policy direction. It explained that major central banks may adopt a cautious stance in response to the emerging shocks, with the Federal Reserve System and the Bank of England expected to hold interest rates steady at their next meetings.
If that happens, the analysts said the Central Bank of Nigeria may adopt a similar wait-and-see approach at its next Monetary Policy Committee meeting scheduled for May.
