Despite a significant appreciation recorded in the value of the naira in recent weeks, the impacts on the prices of goods and services are yet to be felt by Nigerians
As Naira appreciated further against the United States dollar across both the authorised and unauthorised foreign exchange markets on Monday, inflationary pressures persisted across the country.
According to market data published on the FMDQ website, naira closed Monday at N1,136.04/$1 against N1,142.38 recorded in the previous market session last Friday.
Monday's gain represents a 0.6 per cent appreciation from N1,142.38 posted last Friday.
The domestic currency experienced an intraday high of N1,000 and a low of N1,227.00 to a dollar before it eventually closed at N1,136.0/$1 on Monday.
The naira recorded a foreign exchange turnover of $251.60 million on Monday, the official market data showed.
At the parallel market on Monday, the domestic currency also appreciated.
Bureau De Change operators at the Abuja Zone 4 who spoke with this medium said the dollar was exchanged at N1,020 and above to a dollar on Monday and sold at N1,030 and above, as against the N1,100/$1 it was exchanged on Sunday.
The recent gains recorded by the local currency at both the official and unofficial markets these past weeks came amidst ongoing efforts by the government to stabilise the currency and address inflationary pressures in the country following an unprecedented drop in the currency value.
Financial experts have attributed the recent gains of the naira to the ongoing reforms by the government after the local currency, on several occasions within the first quarter of the year, plunged to unprecedented lows.
The Central Bank of Nigeria (CBN) recently sold $10,000 to each Bureau De Change operator at a considerably lower rate to boost liquidity and curb the price distortions affecting the naira exchange rate in the forex markets.
Inflation
While some of these interventions have significantly helped the naira to bounce back from its depreciation run, inflationary pressures persist across the country.
Official figures released by the National Bureau of Statistics (NBS) earlier on Monday put Nigeria's annual inflation rate at 33.20 per cent in March from 31.70 per cent in February,
By implication, the statistics office said the March 2024 headline inflation rate increased by 1.50 per cent compared to the February 2024 headline inflation rate.
The bureau said the food inflation rate in March 2024 jumped to 40.01 per cent yearly, indicating 15.56 per cent points higher than the rate recorded in March 2023 (24.45 per cent).
Reacting to this development, an Abuja-based commodity analyst, Yusuf Ogunbiyi, said headline inflation, as reflected in the Consumer Price Index (CPI) numbers released by the NBS, continues to gallop forward despite the multiple hikes in Monetary Policy Rate (MPR).
That is most reflected in the Year-on-Year numbers as the Month-on-Month numbers seem to be receding, he argued.
"This is expected as there is usually a lag between policies such as the MPR and prices of goods and services in the economy due to higher costs of inventory still being carried by businesses," he said.
Moving away from official data, he said commodity prices have started to reflect the naira appreciation as major export commodities such as Sesame and Soya beans have reflected better Naira-USD conditions.
Additionally, Mr Yusuf said other commodities such as maize, sorghum and paddy rice have also witnessed declines due to the availability of imports in the market.
"The elephant in the room is how long it will take for the policy change (hike in MPR) to reflect in prices," he said.
On her part, Praise Ihansekhien, head of Meristem Research, said the Naira appreciation mostly impacts the core inflation index first due to the dependence of items contained in the core basket on importation.
"Food inflation makes up 51% of the inflation basket, so as the food inflation continues to rise, headline inflation will also remain high," she said.
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She noted that prices increase faster than they often drop, even when the circumstances influencing the direction of prices change.
"In the long run, if the FX appreciation persists, we should see some moderation to price levels, but this doesn't happen as swiftly as one would expect," Ms Ihansekhien said.
Razaq Fatai, research and advisory lead at Vestance, a data-driven intelligence and advisory firm in Abuja, said the recent appreciation of the naira may not have substantially curbed inflation for several reasons.
He said the impact of a stronger currency on inflation typically takes time to materialise and that headline inflation is more sensitive to food prices, which have continued to rise due to domestic issues like insecurity and high production and logistics costs.
"Market participants often react more swiftly to currency depreciation than to currency appreciation when adjusting their prices. Lastly, despite the currency's appreciation, international fuel prices have surged, partially negating the benefits of a stronger naira," Mr Fatai said.
