“Naira’s Appreciation Not Yet Easing Consumer Prices, Analysts Warn of Continued Inflation”


Despite the rapid appreciation of the Naira against major foreign currencies in recent weeks, there are concerns that prices of goods and services in Nigeria may not decrease soon, as highlighted by financial analysts and economists.

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The Naira, which now trades at N1,060 to the US Dollar, marking a significant gain from its peak of N1,900 in February this year, has not translated into reduced market prices, contrary to expectations fueled by the positive trend in the exchange rate.

According to Vanguard’s findings, prices of goods continue to rise, with dealers and producers attributing the upward trend to the previous high exchange rate, which impacts the cost of production and distribution.

Despite the foreign exchange stability, the National Bureau of Statistics (NBS) reported a further rise in inflation rates, reaching 33.2% in March compared to 31.7% in the previous month, while food inflation climbed to 40.02% from 37%.

Financial analysts and economists interviewed by Vanguard cautioned that prices are likely to continue increasing in the coming months before any marginal stability is achieved. They emphasized that sustained positive developments in the foreign exchange market must be accompanied by reductions in other business costs to positively influence consumer prices.

Victor Chiazor, Head of Research at FSL Securities, explained the discrepancy between exchange rate stability and consumer price volatility, noting that prices typically respond quickly to upward shifts but are slower to adjust downward.

Chiazor elaborated, “The recent appreciation of the Naira will take time to reflect in the prices of goods and services due to ongoing high energy and transportation costs. Additionally, infrastructure deficiencies and low incentives for locally manufactured goods further impact price distortion.”

Ayorinde Akinloye, an Economic and Investment Strategist, highlighted that there is a time lag of 60 to 90 days before the impact of the Naira’s appreciation on consumer prices will be felt, as existing inventory was purchased at higher exchange rates.

Gafar Bashiru, Senior Associate at Parthian Partners, emphasized that while a stronger Naira should theoretically lower import costs and subsequently reduce consumer prices, other factors like structural issues and speculative pricing contribute to maintaining high prices despite currency appreciation.

Bashiru suggested that sustained policy efforts and structural reforms are needed to achieve sustainable price stability, including incentivizing local production and addressing bureaucratic hurdles in business operations.

In summary, analysts predict a gradual moderation of inflation month-on-month, though significant price declines may not be realized until later in the year, contingent upon supply-side measures and comprehensive policy adjustments aimed at addressing structural bottlenecks in the economy.

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