Nigeria’s Inflation Dips


Nigeria’s inflation rate eased in February as the removal of fuel subsidies had a more muted impact on prices than forecast, strengthening analysts’ expectations that the Central Bank will hold interest rates unchanged on Tuesday.

The government scrapped subsidies on petrol imports on January 1 but nationwide protests led to their partial reinstatement.

Fuel prices stayed higher than before the subsidy was removed, likely leaving Nigerians with a smaller proportion of their disposable income to spend on other items, some analysts believe.

“This will come as a huge surprise to the market and no doubt lead to much focus as to what was behind the outcome,” said Razia Khan, Head of Africa Research at Standard Chartered.

“The increase in fuel prices no doubt had a contractionary impact on real disposable income. In some sectors, a slowdown in momentum had been evident for sometime, so pricing power, the key ingredient needed to see a translation into any meaningful secondary (inflationary) impact, was largely missing.”

Consumer inflation eased to 11.9 percent year on year in February, from 12.6 percent in January, National Bureau of Statistics data showed on Monday.

The governor of the Central Bank of Nigeria (CBN), Lamido Sanusi, said in January he expected inflation to pick up to around 14-15 percent in the first half of this year, before moderating towards single digits by the end of 2013.

Food inflation, the largest component in the headline figure, eased to 12.9 percent in February, compared with 13.1 percent in January.

The CBN meets to review policy on Tuesday. The unexpected easing in price pressures strengthens analysts’ views that the benchmark interest rate will be held at 12 percent.

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“The unexpected decline almost guarantees that the MPC (monetary policy committee) will keep the MPR (benchmark rate) unchanged, especially given the concomitant resilience of the exchange rate,” said Samir Gadio, economist at Standard Bank.

There were no expectations in the market that borrowing costs might be cut.

Nigeria’s parliament passed the delayed 2012 budget on Thursday with higher expenditure than the finance minister advised, which could put upward pressure on inflation in the medium term.

Lawmakers said the expanded budget was to cover capital spending costs for poverty safety nets for those affected by subsidy removals.

“If it’s capex that’s fine. For us, our major concern has always been recurrent (spending) and overheads,” the central bank’s Sanusi told Reuters on Saturday.

“If capex is actually going in to fix infrastructure, which would help stimulate production, that’s good for us.”

Parliament also raised the benchmark oil price in the 2012 budget to $72 a barrel, from the $70 proposed by the finance ministry. Nigeria saves money above the benchmark price to cushion Africa’s second-largest economy against price shocks.

“Two dollars, frankly, is not too large a change. My concern is the signal that it sent. Finance and the central bank have been very clear that we need to keep the benchmark tight,” Sanusi added.

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