Nigerian inflation accelerated for a tenth consecutive month in August as food prices climbed, strengthening the case for the central bank to raise interest rates again even as the economy contracted in the second quarter.
The annual inflation rate in increased to 17.6% from 17.1% in July, the Abuja-based National Bureau of Statistics said in an emailed statement on Friday. Month-on-month price growth slowed to 1% from 1.3%. The median of 14 economist estimates compiled by Bloomberg was 17.7%. The naira has lost almost 40% of its value against the dollar since June when the Central Bank of Nigeria removed the peg of 197-199 per dollar after more than a year. That increased price pressures in the nation that imports goods from fuel to industrial inputs, and could force the Monetary Policy Committee to further increase rates from 14% at its September 20 meeting.
The committee has tightened policy by 300 basis points this year and the median of ten economist estimates compiled by Bloomberg is for an increase of 75 basis points next week. “The argument to keep interest rates high to attract foreign investment still stands,” Michael Famoroti, economist at Vetiva Capital Management, said by phone from Nigeria’s commercial hub, Lagos. The “steady easing of inflation month on month” is noteworthy, he said.
Food inflation accelerated to 16.4% in August from 15.8% in July. Food prices rose 1.2% in the month. The cost of gasoline was little changed at a national average of 147 naira ($0.47) per litre. Nigeria’s inflation is at the highest since October 2005, according to data on the central bank’s website, at a time when output is at the weakest in more than two decades. Gross domestic product shrunk by 2.1% in the second quarter from a year earlier, which followed a contraction of 0.4% in the previous three months. The International Monetary Fund forecast the economy will contract 1.8% this year.
The further rise in the inflation rate last month “may not be enough to tip the balance on the central bank’s MPC in favor of a rate hike at next week’s council meeting, but we still expect additional interest rate hikes before the end of the year,” William Jackson, an emerging-markets economist at Capital Economics in London, said in an e-mailed note to clients. The naira strengthened 0.9% to 314.5 per dollar by 12:19 in Lagos on Friday.