Nigerian prices, as measured by the Standard Chartered-Premise Consumer Price Tracker (SC-PCPT) accelerated further in July, rising 1.3 percent month-on-month versus a revised 0.8 percent m/m increase in June.
This was the fastest pace of increase in the SC-PCPT since its inception in August 2014, even outpacing the acceleration in the immediate aftermath of last year’s collapse in oil prices and official Nigerian naira (NGN) devaluation.
“Our SC-PCPT showed the biggest monthly rise in prices in July – the first full month during which the new FX restrictions on imports were in effect – since its inception in August 2014. Although it is difficult to isolate seasonal influences, the spike in prices for imported food items on the restricted list suggests that policy was a direct contributor to price pressures. This is a concern that needs to be addressed in a timely manner. For Nigeria, the opportunity cost of the FX measures implemented to date is likely to be significant, especially if they end up preventing the reforms needed to create the basis for more sustainable growth”, Razia Khan, Chief Economist, Africa Standard Chartered Bank, said in a report.
In late June, the CBN published a list of 40 restricted for FX’ imported items; it later added one more item, furniture, to the list. According to CBN regulations, FX from Nigerian markets (whether direct CBN FX sales, the interbank or the parallel markets) can no longer be used to import these items. The restricted list includes a number of food items including rice, margarine, imported palm oil, other vegetable oils, and tomato paste.
The intent of the restrictions is to curb demand for imports, safeguard Nigeria’s FX reserves (which have been affected by declining oil earnings and portfolio outflows), and boost local production. Given the ongoing power-sector deficit and the difficulty of sourcing FX for imported inputs, she said Nigeria is unlikely to see a manufacturing resurgence in the near term. Greater price pressures are likely instead.
“The strong rise in vegetable prices revealed by our SC-PCPT in July hints at these pressures. Seasonal influences and the transport disruptions of recent months may also be playing a role in keeping price pressures elevated. “Based on our findings, we expect inflationary pressure to persist in the coming months”, Khan said.