Nigeria: Inflation falls to the lowest in a year in May

Nigeria’s inflation rate fell for a fourth straight month in May, dropping to the lowest in a year as growth in prices of most goods except food eased.

Inflation in Nigeria, which vies with South Africa as the continent’s largest economy, slowed to 16.25 percent from 17.2 percent in April, the Abuja-based National Bureau of Statistics said in an emailed report. The median of 15 economists’ estimates in a Bloomberg survey was for 16 percent. Prices rose 1.9 percent in the month as the cost of beef and bread increased.

Food prices climbed 19.3 percent from a year earlier, matching the rate in April, which was the highest since at least 2009, the bureau said. The core inflation rate, which excludes farm produce, fell to 13 percent, the lowest since March 2016.

“Food inflation persisting so far in 2017 is cause for concern, and we expect that trend to continue,” Michael Famoroti, an economist at Lagos-based Vetiva Capital Management, said by phone.

Inflation remains above the upper end of the central bank’s target band of 6 percent to 9 percent. The central bank kept its main policy rate at a record high of 14 percent in May to fight price growth and support the naira even as the economy struggles to recover from its first annual contraction in 25 years. It will next review the rate rate on July 25.

Africa’s biggest oil producer has suffered from dollar shortages for most of the period since crude prices crashed in 2014. Investors blamed the central bank for compounding the crisis by tightening capital controls and trying to stop the naira falling, which they said contributed to the economy contracting last year.

Currency Support

In a move to boost investor confidence, the central bank in April introduced a window for portfolio investors to trade foreign currency at a market-determined rate, currently about 375 naira a dollar, about the same as pricing on the black market. Before this, they bought greenbacks from the interbank market at a central bank-maintained rate of about 315 naira per dollar.

Its interesting that “despite a new FX stability in the parallel market, month-on-month and core inflation both increased,” Razia Khan, head of Africa macro research at Standard Chartered Plc in London said by email. “We are still a little concerned that we are not seeing a faster deceleration in inflation despite tightening of the overall monetary policy stance by the CBN.”

Although the rate came in higher than forecast, “the big picture” is that inflation continued to ease in the second quarter, London-based Capital Economics Ltd.’s John Ashbourne said in an emailed note. Lower inflation “will allow the central bank to loosen policy” to 12 percent by end of 2017, he said.

The International Monetary Fund forecast Nigeria’s economy will expand by 0.8 percent this year compared with a 1.6 percent contraction in 2016 as output of oil, the nation’s biggest export, increases, and the government boosts spending. The country will raise expenditure by 21 percent to a record 7.4 trillion naira ($23 billion) this year, according to the budget that vice and acting President Yemi Osinbajo signed on Monday.