Rising cost of consumer items rather than food pushed Nigeria’s inflation up 0.2 percentage points to 8.2 percent in January from 8 percent recorded in December, the National Bureau of Statistics (NBS) reported on Monday in its latest Consumer Price Index breakdown.
“Food prices measured by the food sub-index held at roughly the same pace of increase in January as in December, while on the aggregate, upward pressure on the headline index was largely as a result of increasing divisions that contribute to the core sub-index,” the bureau noted in the report.
The NBS report suggests that the Central Bank of Nigeria’s (CBN) tight monetary policy stance, coupled with last year’s naira devaluation and the weakening local currency are already taking toll on imported items and consequently weighing on consumer prices. Another pressure is the upswing in systemic liquidity in the run-up to the now postponed 2015 general elections.
Nigeria, Africa’s largest economy by GDP, is largely import dependent, a situation that persistently mounts much pressure on the local currency and the external reserves which faces depletion to meet import demand. As at last Thursday the reserves had dropped to $33.2 billion, however, can support up to seven months of import. The naira picked yesterday at the interbank to N198.8 per dollar after hitting over N200 peak in the last two weeks.
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The NBS said in the CPI report that at 9.2 percent, food prices increased at the same pace in January even though groups that contribute to the food sub-index increased faster during the month but was countered by slower rises in the fish, fruit, “coffee, tea and cocoa”; and soft drinks groups.
Core inflation picked up in January after a brief respite in December. Coresub-index rose 0.6 precentage points to 6.8 percent year- on-year, quicker than 6.2 percent seen in December.
Prices increased at a faster pace in most major non-food divisions such as “housing, water, electricity, gas and other fuels, furnishings & household equipment maintenance”, and “clothing and footwear divisions”, the report notes. Analysts anticipate higher inflation to affect real rates while yields go on the increase.
Rising inflation partly due to excess systemic liquidity may on the positive cause interbank rates to go southwards, they said. There are also projections of further pressure on the local currency as investors dump naira de- nominated investment as currency substitution, seen as preference for dollar savings may heighten as hedge against inflation consequences increasing FX demand.
The central bank’s next Monetary Policy Committee meeting to decide rates comes up in March after members unanimously adopted ‘wait and see’ approach in January and left key rates unchanged. Analysts suggest that the unfolding trend could push the CBN already pressured to further devalue the naira to consider further tightening of its monetary policy stance, and particularly raise the MPR slightly up to the 13.5 –14 percent levels.
However, CBN Governor Godwin Emefiele strongly insists that naira is appropriately priced at the moment, and has long ruled out any possible devaluation. Another possible option, analysts think is for the monetary regulator to concurrently or alternatively mop up excess liquidity in the system using either or both the cash reserve ratios and the open market operations (OMO).
