Nigeria’s rising prices put monetary policy in focus

Nigerian price pressures remain elevated, rising to 1.07 percent, month on month in April 2016 following a 1.15 percent price increase in March, thereby putting the monetary policy in focus, according to Standard Chartered Premise Consumer Price Tracker (SC-PCPT).

This is despite reports of relative stabilisation of the naira on the parallel market within a 320-330 range versus the dollar, but on the official market, a queue for foreign exchange persists.

The report sent by Razia Khan, managing director/chief economist, Africa Global Research, revealed that demand for FX at the weekly auction had started to moderate, reflecting direct sales of FX to oil marketers by the state-owned oil company Nigerian National Petroleum Company to facilitate fuel imports.

According to the report, there are other plausible reasons for this moderation. Economic growth is decelerating, and this may be affecting some importer demand. The lengthy wait for FX on the official market may also be discouraging some demand, pushing it to the parallel market instead. With the 2016 budget signed into law on May 6, we expect some pick-up in economic momentum, although the pace of recovery will still be subject to the overall constraint of reduced FX availability.

The outlook for inflation, already reflecting key FX and fuel-related bottlenecks, will be important, the report stated, adding that inflation as measured by the SC-PCPT has now risen every month since December 2015, and at an accelerated pace.

In April, 11 out of the 12 sub-categories surveyed experienced year/year inflation. Starchy roots, tubers and plantains – largely domestically grown and therefore more immune to FX pressures – were the only exception.