In brief
- Nigeria’s headline inflation continued the upturn in March 2023, rising by 13bps to 22.0% y/y as higher food inflation left a bitter taste.
- On a month-on-month basis, price pressures were stronger with the sequential rate rising by 15bps to 1.9% m/m as the lingering FX volatility on the parallel market nudged the monthly food inflation above 2.0%.
- We attribute the rise in headline inflation to the persistent Naira depreciation on the parallel market and the structural bottlenecks with food production and domestic supply chains. In the near-term, we foresee continued upside risk to food inflation due to poor harvest following the severe flood in the agrarian states in 2022, continuing supply chain disruptions and incessant insecurity.
- As the main drivers of Nigeria’s inflation are non-monetary, we believe that the Central Bank’s monetary policy tightening will be less effective against the first-round effect of structurally-induced price shocks. However, we expect the Central Bank to continue signalling its commitment to price stability with another hike in the monetary policy rate, but at a slower pace than the previous increase in March 2023.
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