The CAPE Economic Research and Consulting has projected headline inflation for April to moderate to 21.87 percent, ahead of the official release of the rate by the National Bureau of Statistics (NBS).
In its Economic Newsletter for May forecast, CAPE Economic Research and Consulting stated, “Inflation is expected to moderate marginally in April 2023. Our forecast showed that inflationary pressure would moderate as headline food and core inflation are expected to slow to 21.87, 20.2, and 17.63 percent, respectively.
It noted that the key drivers of the headline inflation forecast were food prices, exchange rate, housing, and utility prices which contributed 5.42 percent, 1.95 percent, and 0.92 percent, respectively.
CAPE stressed that its analysis showed a robust impact of food prices and exchange rates on headline inflation in 2023 compared with the previous month.
According to CAPE, “The moderation in inflation is due to strong pull factors which are largely monetary that are dampening the heightening inflationary pressure. Key pull factors are money supply (M2) and credit to the core private sector, which contributed 0.92 and 0.45 percent, respectively, in moderating the speed of inflation in April 2023.
“The key drivers of the core inflation forecast were clothing and footwear, education, transportation, and alcoholic beverages, which contributed 1.75, 1.74, 1.58, and 0.46 percent, respectively.
“The moderation in our food inflation forecast, despite the lingering impact of floods and the war in Ukraine, was driven by a decline in the price of processed foods and seasonal harvest factors.”
It added that the cash crunch due to the supply constraints of Naira notes led to a moderation in demand as consumers had limited access to physical cash for petty consumption transactions and small-scale informal business activities that depend largely on cash transactions.
This, CAPE observed, negatively affected traders in perishables who were willing to sell off produce at a haircut and limit their loss, also, as traders and service providers were willing to sell at lower prices when a customer was offering physical cash.
“Our analysis established monetary policy instruments as pull factors, suggesting some level of monetary policy instruments’ potency in anchoring expectations and dampening inflation in Nigeria, while structural factors continue to remain dominant in driving inflation in Nigeria.
“Our analysis also suggests that monetary policy in Nigeria might be drawing close to a point of neutrality, where it would have an ignorable impact on affecting economic activities and general price levels in the economy.
“A major challenge for monetary policy instrument potency remains its difficulty in directly impacting demand-side drivers of inflation, particularly household consumption patterns”, CAPE further stated.
It explained that upside risks to inflation are the burgeoning fiscal deficit; monetary financing, election and census spending; anticipated removal of fuel subsidy and the effect of monetary tightening in advanced economies leading to capital outflows and exacerbating exchange rate pressures as well as its pass through to prices.
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