₦airaland Forum

Nigeria’s inflation rate which climbed to the highest level in almost four years in March is the highest among oil producing peers, a signal that the Federal Government’s naira peg is pushing up food and fuel prices and adding pressure on consumer incomes, as a majority of businesses now seek funding from the parallel market.

Inflation in Africa’s largest economy and oil producer, accelerated to 12.8 percent on an annualised basis, the highest since July 2012, from 11.4 percent in February, the National Bureau of Statistics (NBS) said yesterday.

This compares with the most recent annual inflation rate of 4.3 percent in Saudi Arabia, 9.39 percent for Brazil, 3.5 percent for Malaysia, 7.9 percent for Russia, and 7.45 percent for Colombia, according to data compiled by BusinessDay.

Nigeria’s food prices rose 12.7 percent in March, from a year ago, compared with 11.4 percent in the previous month, driven up by transportation costs, the planting season and foreign-exchange movements, the statistics agency said.

The Nigerian central bank has pegged the naira at 197-199 per dollar since March last year, and restricted trading in foreign currencies by banks, making imports more costly for a nation that is a net importer of refined fuel and food products.

The FMDQ OTC Securities Exchange the recognised organiser of the fixed income and currency markets and the MD/CEO, Bola Onadele Koko, when contacted by BusinessDay, said : “FMDQ OTC Securities Exchange did not advise the banks on a fixed rate to execute FX trades. FMDQ’s role is to build a platform to drive transparency and credibility by ensuring its members (banks) offer pre- and post-trade transparency and operate with responsible market conduct in a way to deliver global competitiveness of the Nigerian financial markets”.

Importers are struggling to access foreign exchange at the fixed official rate, with the naira falling to around N320 on the black market.

Sources tell BusinessDay that the Central Bank of Nigeria (CBN) is currently meeting only about 25 percent of FX demand.

This has made most Nigerian businesses to resort to the parallel market to source the needed FX; thereby fuelling inflation.

“Current developments have shown that inflation will continue to rise, given the huge gap between demand and supply of FX. Therefore, Nigeria needs to increase its sources of FX and this makes a flexible exchange rate inevitable,” another banking source said.

The rising prices have been hellish for Nigerian consumers as the black market naira rate, along with the shortage of petroleum products compound their problems.

The implication is that consumers are facing reduced purchasing power with rising prices of food stuffs and other goods.

“This will be the third consecutive monthly increase this year. The month of March was unique as the fuel scarcity intensified and higher transport costs filtered through to commodity prices such as beans, tomatoes and pepper. While our initial time series analysis projected an increase of 0.4%, the severity and longevity of the prevailing fuel scarcity has distorted price levels,” analysts at Financial Derivatives Company (FDC), said in a recent report.

The central bank increased its benchmark interest rate by 100 basis points to 12 percent last month, after inflation accelerated to more than 10 percent in February. Price growth has been outside the government’s 6 percent to 9 percent target band for 10 months.

The International Monetary Fund has lowered its 2016 growth forecast for Nigeria by almost one percentage point to 2.3 percent.

Gregory Kronsten, head of research at FBN Quest, tells BusinessDay that “In general, inflation is bad for the population and most people say it is worse for the low income segment of the population. But the important thing is what the authorities [MPC and CBN] can do about it. If there is a shortage in foreign currency, it will lead to a shortage of goods, which also fuels inflation.”

BusinessDay market review showed that the prices of essential commodities have continued to climb, despite low consumer spending.

A bag of imported 50kg rice is now N14, 000 as against N13, 500.

A tin a Sardines now goes for N200 instead of N165.

A can of baked beans which previously sold for N200 is now N250.

The price of a Blackberry passport (Silver) smartphone which was sold at N123, 000, is now N150, 000 and Samsung Galaxy S6 edge (32GB) smartphone which was N165, 000 now goes for N181, 000.

Data from BusinessDay also shows that the retail prices for some locally produced goods have increased markedly in the last one month.

Market research as at Saturday reveals that a basket of fresh tomatoes is now between N12, 500 and N17, 000 as against N5, 000.

A bag of maize now goes for N13, 500 instead of N11, 000.

A basket of fresh pepper which goes for N2, 500 increased by 100 percent and now sell for N5, 000.

A bag of garri now sells for N5, 500 against N5, 000 which is a 10 percent increase, while a 25 litre can of palm oil increased by 7.1 percent to N7,500 from N7,000 in the last month.

In addition, a pack of Eva toilet soap now goes for N550 against N380, 25 litres of groundnut oil is N9, 500 instead of N6, 500 and a packet of 2kg Semovita rose by 52 percent to sell for N3, 800 from N2, 500.

“Cost pressures will persist with fuel scarcity, forex scarcity and naira weakness, Bismarck Rewane,” CEO of consulting firm, Financial Derivatives Company (FDC) said.

“Importers of products are now sourcing goods from countries with weak currencies and quality products, such as South Africa, Brazil, Argentina and Turkey.”

According to Rewane, “Customer traffic to shopping malls is reported to have reduced due to fuel shortage as consumers demand shift towards necessities and price inelastic goods. Consumers will continue to down trade by patronising value brands and buying cheaper goods.”

BusinessDay survey showed that consumers are sourcing for alternatives as a way of coping with the tough times.

Akwari Damian, a civil servant who resides in Isolo area of Lagos State said he has learnt to make do with what is at his disposal.

“As long as a common sachet water increased, everything other product is bound to increase. The only solution to this problem is to cut your cloth according to your size. We now boil tap water to drink in my house and forgo other expensive food items for now,” he said.

To survive the trying times, Adanne Nwabunna, a housewife in Lagos state is substituting for cheaper products.

“The fact that things are expensive does not mean we will not eat. The price of fish I have on my list has increased so I bought a cheaper dry fish. It’s not the best but it’s better than no fish. This is exactly what I do for other food items and provisions. Instead of fresh tomatoes, I use tinned tomatoes for now”, Adanne said.

Rewane of the FDC explains that the stability in the forex market will reflect in retail price for the month of April.

“Price volatility will increase as interest rates spike making carrying costs high and prohibitive. The prices of goods are reflecting the parallel market exchange and shortages,” Rewane said.

“Brand variety of goods offered will shrink and inventory levels of cheaper goods will increase.”

Seun:
Inflation is unavoidable in these economic circumstances. The government's desperate attempts to stop the unstoppable using highly illogical price controls on forex and petrol are just making things worse by reducing our productivity. They are killing our GDP to prevent inflation.

joseph1832:
So what do you propose?

Seun:
- Abolish the official exchange rate to end forex scarcity overnight. Let people buy and sell foreign currencies at the true market price.
- Abolish price controls on all petroleum products to end the issue of fuel scarcity permanently and encourage economical use of fuel.
- Use the savings from the abolishment of these wasteful price subsidies to promote exportation of the things we can produce economically.
- Use some of those savings to provide shock absorbers to vulnerable people who will be adversely impacted as the economy adjusts.

How do you promote exportation? Provide free information to people. Remove all bureaucratic obstacles that would discourage people from exportation. Cocoa is still the largest export in Nigeria after oil. Every vacant land in the South West should be a mini cocoa plantation.

Seun:
- Abolish the official exchange rate to end forex scarcity overnight. Let people buy and sell foreign currencies at the true market price.
- Abolish price controls on all petroleum products to end the issue of fuel scarcity permanently and encourage economical use of fuel.
- Use the savings from the abolishment of these wasteful price subsidies to promote exportation of the things we can produce economically.
- Use some of those savings to provide shock absorbers to vulnerable people who will be adversely impacted as the economy adjusts.

How do you promote exportation? Provide free information to people. Remove all bureaucratic obstacles that would discourage people from exportation. Cocoa is still the largest export in Nigeria after oil. Every vacant land in the South West should be a mini cocoa plantation.

Seun:
- Abolish the official exchange rate to end forex scarcity overnight. Let people buy and sell foreign currencies at the true market price.
- Abolish price controls on all petroleum products to end the issue of fuel scarcity permanently and encourage economical use of fuel.
- Use the savings from the abolishment of these wasteful price subsidies to promote exportation of the things we can produce economically.
- Use some of those savings to provide shock absorbers to vulnerable people who will be adversely impacted as the economy adjusts.

How do you promote exportation? Provide free information to people. Remove all bureaucratic obstacles that would discourage people from exportation. Cocoa is still the largest export in Nigeria after oil. Every vacant land in the South West should be a mini cocoa farm. Also, allowing devaluation encourages exportation because it makes it dramatically more profitable.