CAPE Research and Economic Consulting, a leading economic analysis organization, has predicted that it expects that Nigeria’s inflation to moderate further in January 2023.
Experts in the firm reported that their research findings which showed that inflationary pressure would moderate as the headline and food inflation are expected to slow to 21.28 and 23.09 respectively, while, core inflation is forecasted to heighten to 18.58 percent.
Providing further insights into the projection in the firm’s just published ‘Economic Newsletter Issue 2 Number 2 February 2023’, the experts stated that the key drivers of the headline inflation forecast were, food prices, exchange rates treasury bills, and housing and utilities which contribute 6.0 percent, 1.96 percent, 0.43 percent, and 0.32 percent, respectively.
The analysts predicted: “Our analysis showed that the magnitude of the impact of food prices on headline inflation and housing and utilities heightened, while that of exchange rate persisted in January 2023 when compared with December 2022.
“The moderation in inflation is due to strong pull factors which are largely monetary factors that are dampening the heightening inflationary pressure. Key pull factors are money supply (M2), narrow money (M1), credit to the ore private sector, and credit to other sectors which contributed 0.91, 0.53, 0.45, and 0.33 percent respectively in moderating the speed of inflation in January 2023.
“Our analysis showed that the magnitude of the impact of food prices on headline inflation and housing and utilities heightened, while that of exchange rate persisted in January 2023 when compared with December 2022.
“The moderation in inflation is due to strong pull factors which are largely monetary factors that are dampening the heightening inflationary pressure. Key pull factors are money supply (M2), narrow money (M1), credit to the ore private sector, and credit to other sectors which contributed 0.91, 0.53, 0.45, and 0.33 percent respectively in moderating the speed of inflation in January 2023”, the CAPE experts added.
They listed the key drivers of the firm’s core inflation forecast on education, clothing and footwear and transportation which contributed 1.77, 1.69 and 1.64 percent respectively, the economists stated that the factors responsible for the moderation in the firm’s core inflation forecast were largely monetary factors: money supply (M2).
Similarly, the researchers reported that the moderation in the firm’s food inflation forecast, despite the lingering impact of flood and the war in Ukraine, was driven by a decline in the price of processed foods and seasonal harvest factors.
This is even as they pointed out that the firm’s analysis further 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.
The experts expatiated: “When compared with December 2022 money supply (narrow and broad) decreasingly contributed to moderate inflationary pressure in January 2023. This however attests to the presence of some monetary elements in inflation and the potency of monetary policy to some extent to rein in the monetary elements of inflation in Nigeria.
“A major challenge for monetary policy instrument potency remains its difficulty in directly impacting demand-side drivers of inflation particularly household consumption patterns”, they added.
Other factors that they identified would contribute to the upward inflationary pressure are the burgeoning fiscal deficit; monetary financing, election spending; 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.
