World Economy

Nigeria Inflation Highest in 11 Years

Nigeria Inflation Highest in 11 YearsNigeria Inflation Highest in 11 Years

Nigerian inflation accelerated to the highest rate in almost 11 years in June, adding pressure on policymakers to increase borrowing costs.

The inflation rate in Africa’s largest economy increased to 16.5% from 15.6% in May, the Abuja-based National Bureau of Statistics said in an emailed statement on Monday.

That’s the highest rate since October 2005, according to data on the Central Bank of Nigeria’s website. Prices rose 1.7% per cent in the month. The median of seven economist estimates compiled by Bloomberg was for inflation to quicken to 16.2%.

Nigeria imports at least 70% of its refined fuel, despite pumping 1.6 million barrels of crude a day according to the International Energy Agency, and faced fuel shortages as retailers struggled to get foreign currency to buy products during a 15-month naira peg that was removed last month. The currency’s official exchange rate weakened to more than 280 per dollar, compared with the fixed rate of 197-199, while the naira trades at around 360 on the black market, increasing prices for consumers.

“We will see inflation averaging in the mid 20% by year-end, mainly because of the foreign-exchange rates,” Yvonne Mhango, an economist at Renaissance Capital Ltd. said by phone from Johannesburg before the data was released.

Food prices rose 15.3% in June from a year earlier, compared with 14.9% in May. The highest increases were in the costs of fish and meat, fruit and vegetables, and bread and cereals, the statistics office said.

 A Contractionary Year

The International Monetary Fund also reported recently that Nigeria’s economy will probably contract this year as energy shortages and the delayed budget weigh on output.

“I think there is a high likelihood that the year 2016 as a whole will be a contractionary year,” Gene Leon, the fund’s resident representative in Nigeria, said in an interview in the capital, Abuja, on July 8. While the economy should look better in the second half of the year, growth will probably not “be sufficiently fast, sufficiently rapid to be able to negate the outcome of” the first and second quarters, he said.

While conditions that impeded growth in the first half of the year, including shortages of power, fuel, and foreign exchange, as well as the higher price of dollars on the parallel market, may have been reduced, they still weigh on the economy, Leon said.

The Washington-based lender cut its 2016 growth forecast for Nigeria to 2.3% in its April Regional Economic Outlook from 3.2% projected in February. The World Bank lowered its forecast to 0.8% last month, citing weakness from oil-output disruptions and low prices. Last year’s expansion of 2.7% was the slowest in two decades, according to IMF data.