The prices of food and other commodities have refused to react to the positive change recorded in the value of naira to the United States’ dollar in the last few weeks.
Following the recent foreign exchange (FX) policy adjustments by the Central Bank of Nigeria (CBN), the value of the naira has been steadily increasing. At the time of this report, the US dollar was being traded at N1,280 on the parallel market.
Read also: Rising food prices push Nigeria’s inflation to 31.70 % in February
The naira has shown improvement against the dollar on the parallel market, commonly known as the black market. It has appreciated by 42.58 percent, rising from its lowest point of N1,825/$ in mid-February.
Following a surge in dollar supply by 69.43 percent last Wednesday, the naira strengthened on the official market, reaching N1,300.43. This increase occurred a day after the Central Bank raised key interest rates.
Prices of food and other commodities had skyrocketed in February due to the freefall of the naira.
According to the latest Consumer Price Index report by the National Bureau of Statistics (NBS), food inflation, which makes up more than 50 percent of headline inflation, continued its upward trajectory for the 14th consecutive month. In February of this year, it climbed to 37.92 percent from 35.41 percent in January.
Many Nigerians had anticipated a drop in the prices of food and other commodities following the steady appreciation in the value of naira.
However, a market survey by BusinessDay Sunday showed that prices have remained “adamant” to the rise in the value of naira.
A medium-sized sliced bread priced at N1100 in February now sold at N1,200. The cost of an egg rose from N150 to N200, and the cost of a crate of eggs rose from N3,500 to N4000 within the same period.
Also, foreign parboiled rice in a 50 kg bag ranges between N80,000 and N85,000, compared to N77,000 to N80,000 in February. Local parboiled rice in a 50 kg bag now sells for N65,000 to N70,000, up from N60,000 to N65,000 in February.
A derica of beans has surged from N1,100 to N1,200, and a 25-litre container of vegetable oil is now priced at N45,000. A paint of garri now priced N2,500 from N2,000 in February.
Why inflation will persist despite currency appreciation – IMF
The International Monetary Fund (IMF) said that inflation triggered by currency depreciation in Sub-Saharan African (SSA) nations is eight times more potent during a depreciation compared to an appreciation.
This implies that inflationary forces might linger longer when local currencies strengthen against hard currencies in SSA countries.
According to a recently released report by the Fund, the extent of the exchange rate pass-through varied depending on factors such as natural resource endowment, domestic market competitiveness, and the effectiveness of monetary policy.
In simpler terms, the report highlighted that a lack of competition in SSA markets heightened inflation rates because pricing was dominated by a limited number of market players.
“The low level of competition in emerging and developing economies meant that firms in these economies generally have greater pricing power; as a result, they can swiftly pass exchange rate depreciations through to domestic prices,” the report stated.
“Lack of competition among firms in these economies has had significant costs, hurting the poor through higher prices of essential items and undermining growth and the ability of the economy to absorb shocks,” it further stated.
Northern group urges businesses to slash prices
The Coalition of Northern Groups (CNG) has expressed its backing for genuine efforts aimed at bolstering and steadying the naira’s value against the dollar, amidst the challenging economic conditions in the country.
In a statement issued by the national coordinator of CNG, Jamilu Aliyu Charanchi, last Thursday in Abuja, the group acknowledged some commendable steps taken by the Federal Government to tackle economic hardships arising from the instability of the naira against the dollar, which has adversely affected the purchasing power of Nigerians.
Expressing disappointment, the CNG noted the reluctance of businesses to adjust their prices in line with the recent improvements in the naira, similar to what occurred when the currency was floated.
The group lamented the persistence of high prices of goods and services nationwide, despite sustained gains by the naira, even in the black market.
Emphasising the moral and economic responsibilities of businesses towards Nigerians’ well-being, the CNG urged them to lower prices to enable citizens to fully benefit from the strengthening naira.
The group also urged businesses to reconsider their pricing strategies to support economic stability, alleviate hunger, financial burdens, and contribute positively to the prevailing economic conditions.
“The CNG is deeply concerned about the current skyrocketed prices which evidently expose some businesses as sworn enemies of Nigeria and Nigerians despite claims for the contrary.
“The CNG emphasizes that businesses must take positive steps to reciprocate the naira’s stability by lowering the price of their products for the benefit of the common man. Failure to do so may constitute deliberate economic sabotage and exploitative tendencies against Nigerians,” it said.
Speaking on the reason why businesses refused to slash prices on the appreciation of naira, Gimba Kanda, an aide to Vice President Kashim Shettima on his X account on Tuesday, said it was because the traders already purchased goods when the exchange rate was high.
He said: “I think we oversimplify the concept of market forces when we expect business owners to respond rapidly. It doesn’t happen like that. Imagine Danliti, a retailer, bought 20 PS5s each for $400 when a dollar was at N1800 and kept them for sale in his shop in Abuja for N750,000. That’s a N30,000 profit from each sale.
“So, when the dollar drops to N1,300, you would, logically, expect each of the devices to be sold at N550,000, that’s the Naira equivalent of the new dollar rate plus his set N30,000 profit. Do you think Danliti’s business would survive this? Of course not. He doesn’t pluck money on trees.
“So, at what point would the market begin to react to Danliti’s prices? That’s when Mr. Smith’s theory of the invisible hand of the market comes in. Ladidi and Ibrahim are two competitors in the same business. When they go to the production station of the PS5 and transport new devices at $400/520,000, they would want to sell faster than Danliti. One would likely settle for N600,000 against Danliti’s N750,000, the other would probably settle for N580,000 to win the best-selling business award.
“Soon, Danliti would be forced to be pragmatic. He would either start measuring his possible losses and reducing his profit projects and meet the new prices somewhere in the middle or get booted out of the business as gamers patronise Ladidi’s and Ibrahim’s businesses.
“The goal of every business is to sell, and once there’s no monopoly, rest assured that the prices would be forced to adjust.
“I do not think the subject of your concern here is Godless; I think he’s refusing to adjust because of the consequent losses. I also think his competitor would force his hands soon, and the prices of things as we know them would drop as the value of the dollar to Naira drops.
“We are reacting this way because of our urgency, but the government doesn’t have to intervene in setting prices before the adjustments happen. It’s going to happen. The government is playing a critical role already in stopping currency manipulation, and we must ally to support Mr. Cardoso and team in sanitising the mess they inherited.”
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