Nigeria: Inflation And Austerity A Short Term But Necessary Concern In Nigeria.

Nigeria: Inflation And Austerity A Short Term But Necessary Concern In Nigeria.

Austerity and higher inflation is likely to be the challenges impacting Nigerian consumers over the next 18 months. This is notwithstanding the decision of the Central Bank to keep interest rates (monetary policy rate) at 13%. Concerns regarding potential foreign investor outflows and domestic investor confidence in local assets appear to have been behind the bank’s decision. However, this is likely to be temporary respite for consumers and investors in Africa’s biggest economy.

The National Bureau of Statistics (“NBS”) released the official inflation rate for June 2015, which was put at 9.2 per cent [the “street” rate is far higher]. The inflationary level released by the NBS is now above the upper limit of the Central Bank’s acceptable band of six to nine per cent. The austerity measures predicted to be put in place by the new administration such as the removal of the petrol subsidy is likely to take place during the course of 2016 causing a rise in inflation. Nigeria is a significant importer of consumer goods and the resulting pressure on the currency as a result of a falling oil price owing to a return of Iranian oil to the market are head winds Africa’s largest economy will have to tackle. This should undoubtedly cause concerns for those interested in investing in Nigeria’s middle class (and the related fast moving consumer goods industry).

Finally, the Monetary Policy Committee commented that the Naira was appropriately priced indicating an unwillingness to bow to pressure and permit the currency to float; at least  in the near future.