JP Morgan Warns Nigeria’s Inflation May Hit 28%

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inflation time bomb

By Adedapo Adesanya

The American investment bank, JP Morgan, has warned that Nigeria’s headline inflation would likely not slow down in the near term as it forecast that it could reach a high of 28 per cent by the end of the year.

The bank, in its market research document on the Nigerian economy titled, Reform pause rather than fatigue released over the weekend, showed that the rate would climb higher as the policies of President Bola Tinubu will impact the prices of goods and services in the country.

Last week, the National Bureau of Statistics (NBS) said the country’s headline inflation hit an 18-year-high of 24.08 per cent in July, in contrast to 22.79 per cent in the prior month, spurred by surging food prices and energy costs.

The JP Morgan report noted that the July high inflation reading is early evidence of the impact of the fiscal and foreign exchange (FX) reforms, which will continue to push up the headline inflation in the coming months.

“Higher parallel market rates in recent weeks are likely to have an impact on August’s inflation reading and will be most noticeable in higher food and core prices,” the bank said in the document seen by Business Post.

As corrective measures, the lender advised that the Central Bank of Nigeria (CBN) maintain the current monetary policy rate (MPR) at 18.75 per cent for the rest of the year. In July, the Monetary Policy Committee (MPC) raised the benchmark interest rate by 25 basis points, indicating that the aggressive tightening might be winding down.

JP Morgan lauded the Tinubu administration, saying that it has demonstrated commitment to economic reforms even though there seems to be a pace in the progress made since the inception of the current administration.

However, it warned that the era of subsidy payment may return with the government’s intention to freeze the price of fuel at its current level.

It, however, showed evidence that the government is currently not subsidising the commodity.

“This is because we estimate that at current average retail prices (NGN617/ltr), crude oil prices (US$85/barrel) and the parallel market exchange rate (900), authorities are not currently subsidising petrol,” the document quoted, adding that,  “However, invariably, a further rise in these key variables and government’s insistence on keeping petrol prices flat will result in a return of subsidies.”

The bank also stressed that the pace of the reforms relating to fiscal adjustments and the FX market could be slow, given the significant inflationary pressure on the economy.

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