FDC forecasts 0.69% rise in Nigeria’s inflation to 12.95% in April

Financial Derivatives, a leading research firm, has projected a 0.69% increase in Nigeria's headline inflation to 12.95% year-on-year in April. In an exclusive interview with CNBC Africa, Damilola Akinbami, Head of Research at Financial Derivatives, provided insights into the key drivers behind this projection. Akinbami pointed out three main factors influencing the expected rise in inflation. The first factor identified was the impact of the lockdown measures implemented due to the COVID-19 pandemic. These restrictions have led to food scarcity and a spike in food prices, as well as a significant increase in commodity prices by over 50%. The income cuts experienced by many individuals during the lockdown have also played a role in limiting disposable income, thereby affecting consumer spending and demand. Akinbami further highlighted the exchange rate adjustments in the country, noting that a weaker currency would lead to increased imports, contributing to higher prices. The combination of these factors is expected to drive the inflation rate upwards. Looking ahead, Akinbami discussed the expected inflationary pressures and the contraction of aggregate demand in Nigeria. The increase in commodity prices coupled with reduced disposable income is likely to lead to higher inflation. However, the decrease in demand due to lower purchasing power could help limit the overall impact on the consumer basket. Akinbami emphasized the delicate balance between rising prices and shrinking demand and its implications for inflation levels. With Nigeria's latest inflation figures set to be released soon, Akinbami commented on the potential impact on the Monetary Policy Committee (MPC) ahead of their upcoming meeting. He anticipated that the MPC would maintain its current interest rates, considering the high inflation rates seen across African countries like Ghana, Angola, Kenya, and Zambia. Akinbami highlighted the need to balance price stability with exchange rate adjustments, suggesting that raising interest rates might not be the most suitable policy response at this time. The discussion also touched on the conversion of external loans to domestic borrowing by the Nigerian Senate—a move expected to reduce liquidity in the money market while potentially attracting demand for government securities. Akinbami mentioned that this could have positive effects on private investments by stabilizing interest rates and increasing liquidity in the market. Looking towards the medium to long-term outlook, Akinbami emphasized that Nigeria's economic recovery from the current health and financial crises would play a crucial role in shaping inflationary pressures. The easing of inflationary pressures is anticipated once the economy starts to rebound, potentially leading to a moderate inflation rate in the medium to long term. However, Akinbami cautioned that until the economy fully recovers, inflation is expected to remain elevated. Overall, the projections by Financial Derivatives paint a nuanced picture of Nigeria's inflation dynamics and the challenging macroeconomic landscape facing the country.