Nigeria inflation declines to 16.1% in June

Nigeria's latest inflation figures show a decline from 16.25% in May to 16.10% in June, signaling a slight improvement. However, this marginal decrease leaves the country far from its goal of achieving single-digit inflation by 2020. Abiodun Keripe, Head of Research at Elixir Investment Partners, offers insights into the current inflation outlook and its implications on the economy. Keripe notes that while the recent numbers were slightly above expectations, they are an improvement compared to previous months. He attributes the moderation in inflation to a positive base effect but cautions that the upcoming festive season could lead to a more stable outlook rather than a significant drop. Keripe anticipates inflation to hover around 15%, citing market prices and FX rates as key drivers. He emphasizes that the pricing dynamics in various sectors, especially energy and core indices, are likely to sustain inflation levels at the current range. Regarding monetary policy, Keripe suggests that the authorities should maintain the current rates and manage liquidity to prevent any drastic changes. He highlights the need to strike a balance in injecting and withdrawing funds from the system to stabilize the market. Keripe predicts that the fixed income market may see limited yield movements unless there is a significant shift in crude oil prices, which could impact both yields and equity markets. Despite concerns about the high inflation rate, he doesn't foresee a substantial increase in yields, suggesting a relatively stable market environment. In terms of investment strategies, Keripe advises investors to prepare for moderate yield levels, rather than expecting a drastic shift. Looking at the broader macroeconomic impact, Keripe acknowledges that persistent high inflation could hinder economic growth prospects. With inflation projected to remain around 15-16%, he expects GDP growth to be subdued, aligning with forecasts from international institutions and Nigerian authorities. Factors such as exchange rate stability, crude oil prices, and external market dynamics will continue to influence Nigeria's economic performance. The uncertain global oil market, coupled with rising shale production in the US, poses additional challenges for Nigeria's crude exports. As a result, Keripe anticipates a modest economic growth rate of 0.5-0.7% for the year, reflecting the impact of inflation and other external variables. Despite the headwinds facing the economy, Keripe remains cautiously optimistic about the outlook, emphasizing the need for prudent fiscal and monetary policies to navigate the challenging inflation landscape. As Nigeria strives to achieve its inflation target, the road ahead appears challenging, requiring a delicate balance between stimulating economic growth and managing inflationary pressures.