Consumer price inflation in Nigeria was 11.9 per cent year on year in February, according to Monday’s data release from the national bureau of statistics.

That was a big drop from 12.6 per cent in the year to January and “a huge surprise to the market”, in the words of Razia Khan, head of Africa research at Standard Chartered Bank. It may be enough to persuade the central bank not to raise interest rates again after all.

One month’s figures don’t make a trend but the February print will still be a big relief to the government and the central bank, which had expected inflation to reach as much as 14.5 per cent during the first half before slowing to its target of 10 per cent. Some market economists had said it would go as high as 17 per cent a year before falling.

As Khan wrote to clients on Monday, many observers had expected inflation to rise sharply following the temporary lifting of fuel subsidies in January – and their hurried reinstatement after protest and strike threats.

Despite the government’s U-turn the lifting of subsidies had been expected to send inflation strongly upwards. But as Khan writes, higher fuel prices also reduced consumers’ ability to spend on other things – the photograph above shows a street trader complaining that business had fallen off while fuel prices were higher.

Khan said aggressive tightening from the central bank last year was still feeding through to the economy, money supply conditions were benign and – although it shouldn’t have had much impact on February’s numbers – the recent appreciation in Nigeria’s currency could be expected to dampen inflation.

The bottom line:

Inflation is still rising, but more gradually than most people would have expected. Core inflation is up 1.5% m/m in Feb. This should not be shrugged off, especially given expectations of further cost-push pressures with tariff and duty adjustments to come through later in the year… Still, at these levels, real interest rates are positive, and this reinforces our view that there will be little need to adjust interest rates just yet, despite the potential passage of a more expansionary budget.

Related reading:
Nigeria: growing richer, growing poorer, beyondbrics
Africa: 10 cities to watch, beyondbrics
Nigeria: No. 1 in Africa by 2014? beyondbrics

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