ABUJA, Sept 17 – Annual inflation in Nigeria stood at 11.02% in August, its lowest in almost four years, down from 11.08% in July, the National Bureau of Statistics said on Tuesday.
Inflation has been falling steadily since May, boosting chances that the central bank could begin to loosen interest rates at its rate setting meeting next week. The price index, which peaked at 18.7 percent in January last year, has been in double digits for three years
The central bank in March cut its benchmark interest rate in a surprise move to 13.5% from 14% as part of an attempt to stimulate growth and signal a new direction. The move was the first rate cut since November 2015.
Governor Godwin Emefiele has said the bank would maintain its tight monetary stance in 2019, and sees inflation at 11.31 percent, rising to 12 percent this year before moderating.
Tuesday’s data showed that inflation fell to its lowest in three and a half years, a level last seen in February 2016. Food prices, which make up the bulk of the inflation basket, dropped to 13.17% in August from 13.39% a month earlier.
The slowdown is unlikely to persuade the Central Bank of Nigeria to reduce its key rate next week as pressure on the naira persists. The Monetary Policy Committee unanimously voted to hold the rate at 13.5% in July with Governor Godwin Emefiele saying efforts to ensure price stability “remain sacrosanct” even as economic growth is important. The central bank targets inflation in a band of 6% to 9%.
The food sub-index, which accounts for about half of the inflation basket, rose 13.2% in August compared with 13.4% in July. A recent directive from President Muhammadu Buhari for the central bank to stop dollar supplies for some food imports could push up prices, if shortages due to clashes between herders and farmers worsen.
While the surge in oil prices after an attack on Saudi Arabia’s oil infrastructure will boost income for Nigeria, which generates more than 90% of its foreign exchange from crude, an increase in petroleum costs could add pressure to inflation because the West African nation imports most of its refined fuel.
The central bank is caught between inflation that’s been above the target range for more than four years and an economy that’s still struggling to recover from a contraction in 2016. Growth in gross domestic product was lower than forecast and slowed for the second consecutive quarter in the three months through June.
With limited scope to ease policy, the central bank has started forcing lenders through regulations and penalties to give out more credit in an attempt to stimulate growth.
Nigeria emerged from its first recession in 25 years in 2017 but growth remains fragile, although higher oil prices and recent debt sales have helped the continent’s biggest crude producer to accrue billions of dollars in foreign reserves.