Prices Of Goods And Services Expected To Remain High Despite Naira Appreciation

Despite the recent appreciation of the Naira against major foreign currencies, prices of goods and services in Nigeria are not expected to come down soon, according to financial analysts and economists.

The Naira has gained significant ground against the US Dollar, trading at N1,060 on Thursday compared to the peak of N1,900 in February. However, contrary to expectations, the prices of goods in the market continue to rise.

The National Bureau of Statistics (NBS) reported a further increase in inflation, with the headline rate reaching 33.2 percent in March, up from 31.7 percent in the previous month. Food inflation also rose to 40.02 percent from 37 percent. Analysts attribute this discrepancy to various factors, including the time lag for exchange rate stability to reflect in prices, high energy and transportation costs, and the economy’s dependence on foreign currency.

Victor Chiazor, Head of Research at FSL Securities, explained that prices are sticky downwards but reflect immediately upwards. He noted that the appreciation of the Naira would take some time to kick in and reflect in the prices of goods and services. Ayorinde Akinloye, an Economic and Investment Strategist, added that a time lag of 60-90 days would be required to clear out the expensive goods before cheaper ones begin to flow into the market.

Gafar Bashiru, Senior Associate at Parthian Partners, highlighted other factors contributing to the current disparity, such as structural issues, time tag, and speculative pricing. He mentioned that businesses might be hesitant to lower prices immediately, fearing future devaluation, leading to “sticky prices.”

Analysts emphasize that sustainable price stability lies largely with the fiscal authority, calling for structural reforms and a focus on domestic production of competitive advantageous products. Addressing bottlenecks in the economy, such as improving transportation infrastructure and reducing bureaucratic hurdles, can potentially lower production costs and translate to lower consumer prices.

David Adonri, Vice Chairman of Highcap Securities, identified insecurity and import dependence on manufactured items as the main factors fueling Nigeria’s galloping inflation. He suggested that inflation could start declining from the fourth quarter if supply-side measures are taken.

Chinazom Izuora, Senior Associate at Parthian Securities, noted that inflation is a lagging indicator, and the effect of policy pronouncements will not be evident until subsequent months. However, she pointed out that headline inflation on a month-on-month basis moderated to 3.02 percent in March, indicating a slowdown in the rate of inflation, though marginal.

As the Nigerian economy navigates through these challenges, consumers may have to wait a little longer before experiencing relief in the prices of goods and services. Policymakers and stakeholders must work together to implement effective measures to address the root causes of inflation and create a more stable economic environment.