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Nigeria’s inflation
rate stood at 11.1 per cent year-on-year in February 2011. This is
lower than 12.1 per cent recorded in the previous month in the new
Composite Consumer Price Index (CPI) series released by the nation’s
bureau of statistics. The monthly change of the CPI was 0.96 per cent
improvement when compared with January 2011.

The percentage
change in the average composite CPI for the twelve-month period ending
February 2011, over the average of the CPI for the previous
twelve-month period was 13.2, slightly lower than the figure for the
preceding month.

Average monthly
food prices rose by 2.9 per cent in February 2011 when compared with
January 2011 figure. The bureau says the increase in the month-on-month
index was caused mainly by upward movement of the prices of some food
items like yam, beverages, fruits, vegetables, fish, and cereals.

The ‘All items less
Farm Produce’ index, which excludes the prices of agricultural
products, increased by 0.9 per cent in February 2011 when compared with
January 2011. The increase was mainly on some household items, building
materials, diesel, and kerosene.

In the twelve-month
to January 2011, the index rose by 10.6 per cent while the average
annual rate of rise of the index was 12.1 percent for the twelve-month
period ending February 2011.

Bismarck Rewane,
managing director, Financial Derivatives Company, said a relatively
stable exchange rate and the fact that the dollar appreciated against
other currencies are some of the reasons behind the drop.

“Nigeria’s
inflation rate has fallen. This could be a reflection of the relatively
stable foreign exchange rate over the months. The prices of imported
goods may not have influenced the market as they used to because of the
stable rate.

“However, this
doesn’t mean that prices of goods have gone down; it doesn’t mean that
general prices have actually reduced. This means that the rate at which
prices increase have reduced,” Mr. Rewane said.

“This is happening probably because the Central Bank is holding the forex rate stable, within a specific range,” he added.

Samir Gadio,
Emerging Markets Strategist, Standard Bank, says given the surge in oil
price and the turnaround in oil output, the Central Bank is keen to
support exchange rate stability.

“Oil production and
price dynamics, coupled with incrementally tangible signs of some
fiscal restraint in 2011, as government borrowing declined sharply in
recent months, should ultimately support the Central Bank’s willingness
and ability to maintain the exchange rate within the +/-3 per cent
range around the 150 dollar to naira level.

“Furthermore, the
Central Bank’s governor, Lamido Sanusi, reiterated several times in
recent weeks that any currency devaluation would have a negative effect
on inflation and other macroeconomic control variables, but would not
necessarily result in improved external competitiveness, due to the
structural and infrastructure bottlenecks of the economy and its
import-dependent nature,” Mr. Gadio said.

Experts say the
monetary tightening by the Central Bank since September 2010 has helped
curtail naira liquidity and contain speculative demand for the dollar.

The Monetary Policy
Rate was gradually rose by 50 basis points to 6.5 per cent between the
September and January Monetary Policy Committee (MPC) meetings, and the
Standing Deposit Facility rate was raised 350 basis points to 4.5 per
cent in the same period.

Outlook

The chances of the
Central Bank increasing rates further at the next Monetary Policy
Committee meeting to be held later in the month are reasonably high,
according to forecasts by industry watchers.

“The exchange rate
has come under pressure again and the risks to inflation remain to the
upside, despite the drop in consumer prices to 11.1 per cent year on
year in February, from 12.1per cent in January,” Mr. Gadio said.