FDC: Nigeria’s October inflation will spike to 14.4%

Nigeria's economy is facing significant challenges as Financial Derivatives forecasts a spike in inflation to reach 14.4% in October. The recent #ENDSARS protests have exacerbated the already fragile economic situation in Nigeria. Before the protests turned into a crisis, they had already disrupted businesses, markets, and traffic in Lagos, leading to artificial scarcity of commodities. These disruptions, coupled with higher logistics costs and supply chain disruptions, have driven up food prices, which in turn is fueling inflation. Nosecane Nwajide, a Senior Analyst at Financial Derivatives, explained that the spike in food inflation is the main driver behind the rise in the headline index. The supply chain disruptions and the impact of the protests on transportation and logistics costs have further worsened the situation, contributing to the projected spike in inflation. The Central Bank of Nigeria (CBN) had originally forecasted inflation to touch 14% by the end of the year, but it is now expected to exceed that number, potentially breaching 15% by year-end. Inflation rates above 12% are known to hinder economic growth, and the current inflation level is considered growth-retarding. The CBN's target inflation rate is 6-9%, highlighting the significant gap between the current inflation rate and the desired level for sustainable growth. The economic implications of the #ENDSARS protests go beyond inflation and could have lasting effects on Nigeria's economy. Investor confidence is a major concern, as the unrest in the country could discourage both foreign direct investment (FDI) and foreign portfolio investment (FPI). The perception of Nigeria as a high-risk investment destination due to a combination of high inflation, low interest rates, violence, and potential political instability could lead to capital flight and deter new investments. This, in turn, could impact job creation and worsen unemployment rates. The economic recovery, which had shown some positive signs earlier in the year, is now facing new challenges. The International Monetary Fund (IMF) recently revised its growth projection for Nigeria upwards, but the resurgence of COVID-19 cases in Europe and the resulting impact on global commodity prices could further delay Nigeria's recovery. The damage caused by the protests, including the destruction of businesses and assets, will likely have a negative impact on GDP growth. Despite expectations of a slight improvement in GDP growth in Q3 as the country emerged from lockdown measures implemented in Q2, the outlook for Q4 is now more pessimistic. The projected negative growth in Q4 could be as high as -4.3%, as the looting of palliatives during the protests may reduce consumer spending during the festive season. Overall, the economic outlook for Nigeria remains challenging, with uncertainties surrounding inflation, investor confidence, GDP growth, and the global economic environment.