Weaker naira may push up imported goods prices: Capital Economics

A weaker naira is likely to push up prices of imported goods in the near term, London-based Capital Economics has said.

The economic research firm said on Wednesday that deficit monetisation would probably add to the inflation problem further out.

The naira plunged to 557 against the dollar on Tuesday from 550/$1 on Monday.

Markets Reporters reported earlier that the inflation rate in Nigeria fell for the fifth straight month to 17.01 percent in August from 17.38 percent in July, according to the National Bureau of Statistics.

The Emerging Markets Economist at Capital Economics, Virag Forizs, said, “The drop in the headline inflation rate in Nigeria, to 17.0 percent y/y in August was, once again, driven by easing food price pressures, although core inflation also eased.

“This is likely to reassure policymakers and we expect the benchmark rate to remain unchanged this month and beyond.”

She said the drop in food inflation was probably a reflection of improved domestic conditions as imported food inflation was stable at 17.1 percent year-on-year last month.

She said, “Looking ahead, food price pressures will probably continue to soften, gradually bringing down the headline inflation rate over the coming months. That said, we don’t expect inflation to return to the central bank’s 6-9 percent target range over our forecast horizon.

“A weaker naira is likely to push up prices of imported goods in the near-term and deficit monetisation will probably add to the inflation problem further out.”

Forizs said policymakers would probably take comfort in the latest reading and leave their benchmark rate on hold for some time, including at this month’s MPC meeting.

“We expect the policy rate to remain at 11.50 percent over 2021-23 as the economic recovery proves to be sluggish,” she added.