Nigeria to see stronger price rises in coming weeks

Nigeria continues to feel the downside impact of a weaker oil-price environment, despite a recovery in the oil price from its January lows.
 
The 0.4% m/m increase in the SC-PCPT marks the start of a more pronounced inflation trend. Seasonal influences on food prices have contained headline inflation so far, despite increased FX pressure on the Nigerian naira (NGN) and a c.25% depreciation in interbank FX rates since early 2014. 

The single-digit consumer price inflation recorded in the past year may be about to change. Nigeria's food-price trends are likely to be less benign.

The transmission of NGN weakness to Nigerian prices - which has been slow to date - should also pressure prices higher.

Societe Generale notes in a report on Monday:

• At current oil prices, we believe that Nigeria's FX reserves will remain pressured ahead of the election, limiting the extent of the CBN's FX sales to the interbank market. Food prices are already under increased upward pressure, as our indicator suggests. 
  
  
• The evidence on the pace of FX pass-through to Nigerian prices is mixed. Weaker demand has curbed the ability of some retailers to pass on price increases, with retail margins suffering instead. However, such benign influences on inflation are likely to be short-term in nature.
  
  
• New imports in the coming months will better reflect the current USD-NGN FX rate. Despite the slow pace of FX pass-through to inflation, inflation is set to rise further in the coming months. 

We expect to see more pronounced price increases in the coming weeks, reflecting pass-through from the cancellation of RDAS auctions and temporary bottlenecks in fuel availability.