Although, Nigeria’s inflation rate fell for a fifth consecutive in June even as food-price growth surged, Lukman Otunuga, research analyst at Forex Times, has urged the Central Bank of Nigeria (CBN) to now focus on rectifying the multiple foreign exchange market as part of strategies to regain investors’ confidence.
The Country’s inflation eased to 16.1 percent from 16.3 percent in May, the Abuja-based National Bureau of Statistics said in an emailed report Monday.
Commenting on the NBS inflation data, Otunuga said that sentiment towards the largest economy in Africa was uplifted on Monday following reports that the nation’s inflation declined for a fifth straight month in June, to 16.1%.
“The continued signs of price stability in 2017 are likely to stimulate investor sentiment as Nigeria wrestles with a currency crisis and Dollar shortages created by low oil”, he said.
Meanwhile, NBS said, the median of 15 economists’ estimates compiled by Bloomberg was for 16 percent. Prices rose 1.6 percent in the month.
Inflation has been above the upper end of the central bank’s target band of 6 percent to 9 percent for two years. Governor Godwin Emefiele kept the main policy rate at a record high of 14 percent since last July to fight price growth and support the naira even as the economy has contracted for five consecutive quarters.
It will next review the rate on July 25. Emefiele said last month tight monetary policy will continue.
The average gasoline price rose 1.2 percent in June from a year earlier compared with a 10.3 percent increase in May, the statistics office said in a separate report. Food inflation accelerated to 19.9 percent from 19.3 percent, driven by the cost of bread and cereals, meat, fish and potatoes, agency said.
“What we think drove inflation down is the high base effect,” Pabina Yinkere, an analyst at Vetiva Capital Management, said by phone from Lagos. “Inflation is going to be around for a while driven by food prices. We are going into harvest season nonetheless, so numbers will continue to come down.”
A dollar shortage in Africa’s biggest oil producer has contributed to price growth as importers resorted to buying hard currency on the black market at a higher cost. Investors blamed the central bank for compounding the crisis by tightening capital controls and trying to prevent further weakening of the naira, which they said contributed to the economy contracting in 2016 for the first time in 25 years.
Otunuga said, “With the Central Bank of Nigeria’s constant intervention in the forex market slowly closing the disparity between the parallel and official exchange, the cost-push inflation concerns have somewhat receded.
“While the Naira may witness further stability in the coming months as the CBN intervenes, multiple exchanges have left the foreign exchange divided and needs to be rectified in order to boost investor confidence. On the macro front, if inflation continues to follow a negative trajectory, the Naira stabilizes and other forms of hard economic data improve, the CBN may be handed an opportunity to cut interest rates to support economic growth”, he advised.