Tuesday, May 17, 2016

Inflation hits six-year high in Nigeria

Annual inflation in Nigeria quickened to a near six-year high of 13.7 percent in April, in part due to rising petrol and electricity prices, the National Bureau of Statistics said on Monday, stoking expectations of another rate hike.

Nigeria’s worst economic crisis in decades has been driven by a sharp drop in oil prices that has slashed government revenues since the country relies on crude sales for around 70 percent of national income.

Gross domestic product growth was just 2.8 percent last year, its lowest rate since 1999, and speculation of a devaluation of the naira currency is growing. March inflation was 12.8 percent.

The statistics bureau (NBS) said the higher inflation rate in April, the highest level since August 2010, according to Thomson Reuters data, reflected increases across all sectors.

In March, Nigeria’s central bank tightened monetary policy, raising the benchmark interest rate to 12 percent from 11 percent to try to curb the galloping inflation, a surprise reversal that came just four months after rates were cut.

“The focus inevitably shifts to what sort of monetary policy reaction to anticipate,” said Razia Khan, chief economist, Africa at Standard Chartered bank, looking ahead to the monetary policy committee meeting due next Monday and Tuesday.

“With the central bank governor previously stating that a headline inflation rate in excess of the MPR (benchmark interest rate) is undesirable, expectations of tightening are likely to build,” she said.

NBS said petrol prices and electricity tariffs were major factors in the inflation rise.

Last week, the government announced it was scrapping a costly fuel subsidy scheme and increasing petrol prices by up to 67 percent which will affect many of Nigeria's 180 million people who rely on gasoline to power electricity generators as well as transport.

The new prices have yet to feed into the inflation figures, but NBS data suggests fuel was already generally sold at a higher price than the new official ceiling throughout much of April, meaning more inflationary pressure could be building.

Food prices, which account for the bulk of the inflation basket, rose 13.2 percent in April, up 0.4 percentage points from March, the bureau said on its website.

Inflation has also been fuelled by pressure on the naira, which on Monday slipped to its weakest level in months against the dollar in the non-deliverable forward market.

Speculation that the central bank will soon devalue the currency - which the bank denied on Sunday, has swirled since the vice president last week said foreign currency policies needed to be changed to encourage investment.

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