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Economic week ahead: November inflation & Fed’s final meeting (December 11 – 17)

Economic week ahead

The naira plunged to its lowest point on record in official trading last week, weakening by 23 percent to N1,099 per dollar on Friday, as dollar supply remained scarce.

It’s the second week of December and the $10 billion inflow which the Finance minister, Wale Edun, said in October was expected in “coming weeks” has not come, or atleast most of it. In the meantime the naira is under pressure going into the festive season.

With inflation data, which is due for release this week, likely to show sustained inflationary pressure in November after the rate rose to 27.33 percent in October, the Central Bank of Nigeria will be in the eye of the storm this week.

This week, the National Bureau of Statistics will publish its inflation report for the month of November while the United States Federal Reserves, the equivalent of the CBN, will decide on interest rate direction in the world’s largest economy.

The following events are scheduled to take place this week.

December 11

State of states’ finances

The National Bureau of Statistics (NBS) will publish critical data on the internally generated revenue of states in the first half of 2023 on Monday, December 11.
Latest data from the NBS showed that the total internally generated revenue (IGR), by the 36 states and the Federal Capital Territory (FCT) climbed to N1.93 trillion in 2022.

The 2022 IGR was 1.57 per cent higher than the N1.896 trillion generated by the states in 2021.

Data from the first six months of 2023 will show the progress made by the states in raising revenues which is critical to breaking their overdependence on allocations from the federal government.

According to the NBS, Lagos State, Rivers State and the FCT generated the highest revenue of the states with N651.15 billion, N172.82 billion and N124.37 billion respectively in 2022.

This is 49.25 per cent of the total IGR in 2022.
It is unlikely the dominance shown by the three states changed in the first half of this year

Meanwhile, the lowest three performing states during the year were Kebbi, Taraba and Yobe with values of N9.15 billion, N10.24 billion and N10.46 billion respectively.

Read also: Inflation pressure heightens Nigerians cost of living

December 12-13

US Fed’s final meeting

The next Federal Open Market Committee (FOMC) meeting will be held on December 12-13, 2023.

Many experts expect the Fed to hold rates steady at a target of 5.25 percent to 5.50 percent.

In addition to deciding what to do with interest rates now, officials must pencil in where they think rates likely are headed next year and beyond after this meeting.

Last week, treasury yields surged as traders pared expectations for the Federal Reserve to ease monetary policy aggressively next year after a better-than-forecast jobs report.

Benchmark two-year yields, those most closely tied to the outlook for US central-bank policy, rose as much as 14 basis points, the most in a day since June. Rates across the maturity spectrum were higher by at least about six basis points on the day.

“They will have a real awkward time in December,” with the projections likely showing interest rate hikes at an end, but Fed officials not wanting that to be construed as a weakening of their commitment to 2% inflation or as a signal that cuts are imminent, said Vincent Reinhart, Dreyfus & Mellon chief economist and a former top Fed monetary policy official.

Emerging markets will be hopeful the Fed begins to reduce interest rates as soon as possible to reverse the capital outflows that have characterised the rise in global interest rates.

December 15

Another rise in inflation in the offing

The NBS is also scheduled to release inflation data for the month of November on the 15th of December as it has always done without fail.

Nigeria’s annual inflation rate rose to 27.33 per cent in October from 26.72 per cent in the previous month, according to latest NBS data.

Read also: NLC demands living wage in the face of inflation

Analysts polled in a survey expect a further rise in inflation in November.

For consulting firm, KPMG Nigeria, headline inflation will rise as much as 30 percent by December 2023. The anticipated increase is due to the lingering impact of the fuel subsidy removal and the unification of the foreign exchange rates which has paved the way for a big devaluation of the naira.

For many Nigerians, food inflation is the most problematic especially as Christmas beckons.

Food inflation has been particularly brutal for Nigeria whose citizens spend over half of their income on food.

The food inflation rate in October 2023 was 31.52 per cent on a year-on-year basis, which was 7.80 per cent points higher compared to the rate recorded in October 2022 (23.72 per cent).

The NBS said the rise in food inflation on a year-on-year basis was caused by increases in prices of bread and cereals, oil and fat, potatoes, yam and other tubers, fish, fruit, meat, vegetables and milk, cheese and eggs.

“On a month-on-month basis, the Food inflation rate in October 2023 was 1.91 per cent this was 0.54 per cent lower compared to the rate recorded in September 2023 (2.45 per cent),” it said.

According to the NBS, the decline in food inflation on a month-over-month basis was caused by the decline in the rate of increase in the average prices of fruits, oil and fat, coffee, tea and cocoa, bread and cereals.

Higher inflation will put more pressure on the CBN to hike interest rates further but it is unlikely the CBN meets again this year with new apex bank governor, Olayemi Cardoso, in no hurry to hold a meeting he says has already happened more than the minimum required times in one year.