FDC Economic Bulletin

1. Inflation to Maintain Its Upward Trajectory: Headline Rate to
Rise to 18.2%
FDC Economic Bulletin
Financial Derivatives Company Ltd.
: 01-7739889  www.fdcng.com
November 09, 2016
Our Year-on-Year (YoY) headline inflation forecast for the month of October is estimated to increase
marginally to 18.2%. This is a 0.3% increase from the previous month’s rate of 17.9%. We are also
forecasting a month-on-month inflation rate of 0.67%, which if annualized is 8.38%, approximately 1.92%
lower than the September’s level. If our estimate is correct, this will be the highest YoY inflation level in 11
years.
At its September meeting, the CBN expressed concerns about rising inflation, citing this as a reason for
maintaining its contractive stance. Given that there is major clamour for lower interest rates and a stimulus
package as antidotes to the recession, the reduced monthly inflation rate may sound like music to the ears
of the doves in the committee.
Forex market
At the interbank market the naira appreciated by 2.5% to N305/$ during the month. At the parallel market,
the naira appreciated by 1.05%, closing at N470/$ at the end of October from N475/$ in September. This
appreciation was due to improved dollar sales from International Money Transfer Operators (IMTO).
Source : NBS, FDC Think Tank
Chart 1: Headline Inflation Rate
Source : NBS, FDC Think Tank
Chart 2: Annualized MoM Inflation

3. However, following the market absorption of the limited Diaspora remittances, dollar scarcity passed
through to domestic prices.
Baked Goods
The Association of Master Bakers and Caterers of Nigeria (AMBCON) recently increased the prices of bread,
biscuits and other pastries by 15%, citing higher input costs as the reason. This is in line with the recent price
hike of essential products.
Urban Price Movement
The FDC Lagos urban inflation index decreased to 12.38% in October. This is a decrease of 0.73% from the
September rate of 13.11%. The decline in our urban index is due to consumer resistance in the market. The
year-on-year food index decreased to 15.04% from 16.27% in September while the non-food year-on-year
index decreased to 11.03% from 11.51%.
Consumer behaviour in October
Consumer resistance is beginning to intensify as incomes and habits change. Prices of substitutes are
beginning to climb whilst products with elastic demand are falling. Nigeria’s inflation in 2016 has arisen due
to supply shocks.
FDC Economic Bulletin Page 3
Financial Derivatives Company Ltd.
: 01-7739889  www.fdcng.com
Chart 3: Month-on-Month Price Changes
Source : FDC Think Tank

5. Outlook: Festive season and consumer expectation
Typically, consumer prices tend to increase towards the end of the year due to rising demand for goods and
services for the Christmas festivities. In some cases, artificial scarcity is created to push prices up.
Furthermore, in anticipation of higher prices, consumers tend to revise their expectations and demand,
thereby inevitably increasing prices. However, lower disposable income has reduced consumers’ ability to
demand more. Thus, consumer resistance has become increasingly dominant in the market.
FDC Economic Bulletin Page 5
Financial Derivatives Company Ltd.
: 01-7739889  www.fdcng.com
Important Notice
This document is issued by Financial Derivatives Company. It is for information purposes only. It does not constitute any offer, rec-
ommendation or solicitation to any person to enter into any transaction or adopt any hedging, trading or investment strategy, nor
does it constitute any prediction of likely future movements in rates or prices or any representation that any such future movements
will not exceed those shown in any illustration. All rates and figures appearing are for illustrative purposes. You are advised to make
your own independent judgment with respect to any matter contained herein.
© 2016. “This publication is for private circulation only. Any other use or publication without the prior express consent of Finan-
cial Derivatives Company Limited is prohibited.”