Despite the recent strengthening of the Naira against foreign currencies, prices of goods and services have yet to decline. As of Thursday, the US Dollar traded at N1,060, a significant gain from its peak of N1,900 in February.
However, market observations reveal that prices remain high, contrary to expectations that a stronger Naira would lead to lower prices. Traders and producers attribute the price increases to the previously elevated exchange rate.
**Statistical Evidence of Price Rises**
Despite the positive trend in the exchange rate, the National Bureau of Statistics (NBS) reported a further increase in inflation. In March, the headline inflation rate rose to 33.2% from 31.7% in February, while food inflation climbed to 40.02% from 37%.
**Analysts’ Predictions**
Financial analysts predict that prices will continue to increase in the coming months before stabilizing. They emphasize that the positive developments in the foreign exchange market need to be sustained for an extended period, and other business costs must decline for the lower exchange rate to impact prices positively.
**Time Lag and Price Stickiness**
Experts explain that price increases are more responsive to upward changes in production factors than to downward adjustments. Positive exchange rate changes take time to reflect in consumer goods prices.
Victor Chiazor, Head of Research at FSL Securities, notes that prices in Nigeria are “sticky downwards” but “reflect immediately upwards.” He highlights the influence of high energy and transportation costs on consumer prices, which have remained elevated despite the Naira’s appreciation.
**Policy Implications**
Analysts believe that the current monetary policy decisions by the Central Bank of Nigeria (CBN) will eventually yield results, but a prolonged tightening stance could negatively impact economic growth.
Ayorinde Akinloye, an Economic and Investment Strategist, emphasizes the time lag between policy implementation and macroeconomic outcomes. He estimates that it will take 60-90 days for the impact of the Naira appreciation to be fully realized in the market.
Gafar Bashiru, Senior Associate at Parthian Partners, acknowledges the expected decrease in import costs, but highlights structural issues, time lag, and speculative pricing as factors contributing to the price disparity. He suggests that fiscal policies, such as structural reforms and promoting domestic production, are necessary for sustainable price stability. CONTINUE READING
Leave a Reply