Nigeria’s inflation slowed to 11.08 percent in July, its lowest in 42 months, buoyed by lower food prices on account of favourable harvest.
Figures released by the National Bureau of Statistics (NBS) show inflation decelerated for second straight month, nearing the Central Bank of Nigeria’s (CBN) 6-9 percent target.
But analysts say it is unlikely for the average change in prices of market basket of consumer goods and services to drop to single digit in near term.
Food inflation trended to an eight-month low of 13.39 percent in July, even as core inflation that excludes the prices of volatile agricultural produce further eased to 8.8 percent to reach its lowest level in over three years.
The inflation aligned with experts’ projection of tangible moderation in prices of goods and services following the commencement of harvest season.
Analysts at Lagos-based advisory firm, Financial Derivatives Company, had earlier predicted a drop in inflation figure to 10.98 percent.
“The probability that headline inflation will fall below 10 percent and stay there is unlikely at this time soon,” they said in a note to clients.
Their reasons being that the economy will be impacted by higher liquidity resulting from the payment of new minimum wage to low-grade workers as well as CBN’S drive to spur lending to real sector.
The last time Nigeria recorded a single-digit inflation figure was in January 2016, when general prices grew 9.62 percent.
Analysts at the research arm of First Securities Discount House (FSDH) project inflation moderating to 11.01 percent, saying an increase in inflation rate is not totally bad but a mild increase in general prices is needed to facilitate output.
They stress that a single-digit rate is no sight for the economy at the moment.
The Godwin Emefiele-led CBN has in the last five years been aggressive in boosting local agricultural output and lessening reliance on oil.
This action, experts say, is deliberate, knowing that food prices drive inflation.
President Muhammadu Buhari last week directed the apex bank to halt supply of foreign exchange for food importation, saying Nigeria was now food secured.
Tackling inflation in Nigeria requires efforts from the fiscal authorities to address structural issues in fixing infrastructure and encouraging backward integration, the effect that will make it easier for manufacturers to access raw materials locally.
The monetary authority may also have to decide if a shift to flexible exchange regime may pull inflation down to a single digit.
Egypt’s experience in addressing structural challenges, which has seen inflation slow further to 8.7 percent in July, holds lessons for Nigeria.
Faced with acute forex shortage and sluggish economic growth in 2016, Egypt, Africa’s third biggest economy, slashed energy subsidies that had earlier pressured public finance. The country floated its currency and introduced welfare programmes as palliative measures.
The Arab nation is now reaping the long-term benefits of these bold reforms after in terms of stronger Egyptian pounds, low inflation and faster economic growth. The country is on course to remove subsidies completely by September.
