Standard Chartered consumer price tracker shows Nigeria inflation surges

The Standard Chartered-Premise Consumer Price Tracker (SC-PCPT) for Nigeria surged 2.75 percent m/m in May, following strong monthly gains of 1.07 percent in April and 1.20 percent in March. Prices, as measured by the SC-PCPT, have now risen every month since December 2015.

Each of the 12 food sub-categories surveyed experienced m/m inflation in May, with 10 out of the 12 categories showing y/y inflation. The strongest price gains were observed in the sugar (up 20.36 percent y/y), vegetables (19.2 percent y/y) and oils and fats (16.5 percent y/y) sub-categories. 23 out of the 25 surveyed products that are subject to Nigerian FX controls also saw m/m inflation – with earlier restrictions evidently still helping to drive price gains, especially for imported rice and tomato paste.

Faster inflation amid worsening economic weakness may have prompted a policy rethink. Real GDP fell 0.36 percent y/y in Q1-2016, even as official headline inflation accelerated to 13.7 percent y/y in April. With much of the food price pressure attributed to a growing fuel shortage, itself the result of scarce foreign exchange, the authorities took corrective action. In early May, the authorities revealed a new fuel price formula, allowing fuel to be sold officially at NGN 145/litre from a previous NGN 86.00/86.50. Implicit in the new fuel pricing formula was the assumption that oil marketers might be able to obtain FX at a USD-NGN rate of 285, versus the old official rate of 197.

The partial fuel price deregulation was followed shortly after by a unanimous vote to adopt currency flexibility by the Central Bank of Nigeria (CBN) at its late May Monetary Policy Committee meeting. However, at the time of writing, we await details on what flexibility might mean, and when Nigeria’s FX regime will be liberalised. We examine the implications of any policy changes, and the outlook for inflation, below.

Commenting on this Razia Khan, head of Research for Africa stated: “Prices as measured by the SC-PCPT have now risen in every month since December, despite the economic contraction in Q1-2016, and weak money-supply growth. We believe that the adoption of greater currency flexibility represents the authorities’ best hope for restoring price stability. With Nigeria’s parallel FX market suffering from deep structural imperfections, it is important that transaction demand move back to the official interbank market, to avoid greater overshooting. While the authorities have made known their plans to adopt greater flexibility, we do not yet have details. Our latest publication takes an in-depth look at what the various influences on FX policy are likely to be.’’

The Standard Chartered MNI Business Sentiment Indicators provide unrivalled insight into business activity, and is expected to be a forerunner in economic analysis in each of the three countries. Companies of varying scale and sectors respond to a consistent set of survey questions covering themes such as orders, production, interest rate fluctuations, credit availability, employment and export trends.

 

Modestus Anaesoronye