Inflation soars to three-year high in February

Nigeria’s inflation rate rose above 10 percent in February for the first time since December 2012 as food prices soared and the central bank’s capital controls pushed up import costs.

Inflation accelerated to 11.4 percent on an annualized basis from 9.6 percent in January, the National Bureau of Statistics said in a report published on Tuesday in the capital, Abuja. Food prices gained 11.4 percent in February from a year ago, up from 10.6 percent in the previous month.

Instead of stemming inflation, the central bank’s pegging of the currency in the past year has accelerated price growth by leading to dollar shortages and causing the black-market exchange rate to plunge, according to London-based Capital Economics Ltd. While Governor Godwin Emefiele has held the naira at 197-199 against the dollar since March last year through trading and import restrictions, the black market rate has fallen to around 325.

“We believe that the key factor driving this acceleration in inflation is the de facto devaluation of the naira,” John Ashbourne, an economist at Capital Economics, said in an e- mailed note. “As FX restrictions squeeze an ever-increasing share of consumers out of the official market, the parallel market exchange rate will increasingly determine the cost of imported goods.”

Inflation has been above the central bank’s 6 percent to 9 percent target band since May. Policy makers lowered the benchmark interest rate by 2 percentage points to 11 percent in November to help support an economy hit by plunging oil prices. The bank will make its next rate decision on March 22.

The median estimate of 17 analysts surveyed by Bloomberg was for inflation to reach 9.9 percent. Consumer prices rose 2.3 percent in February from the previous month.

Growth in Nigeria, Africa’s biggest oil producer, slowed to 2.8 percent last year, the weakest level since 1999 and down from 6.2 percent in 2014. The central bank’s currency curbs have been blamed by analysts for worsening the slowdown by deterring foreign investment and making it difficult for businesses to buy imported goods.

“Looking ahead, inflation is likely to rise further and erode household purchasing power,” Chernay Johnson, an analyst at Credit Suisse Group AG in Johannesburg, said in an e-mailed research note. “The administrative FX controls on certain imports, including manufactured inputs and agricultural goods, have since their introduction in mid-2015 led to short supply in the local market and higher imported inflation.”