Nigeria inflation rises despite cbank rate hikes

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Central Bank Nigeria

Central Bank Nigeria

ABUJA, Oct 14 (Reuters) – Nigeria’s headline inflation rose outside the central bank’s notional single-digit target in September, data showed on Friday, despite six official interest rate rises this year.

  • Consumer inflation 10.3 pct in Sept vs 9.3 pct in Aug
  • Cbank raised interest rates six times this year
  • Unemployment 21.1 pct in 2010 vs 19.7 pct in 2009

Nigeria’s consumer inflation rose to 10.3 percent year-on-year in September from 9.3 percent in August, snapping three straight months of declines, the National Bureau of Statistics (NBS) said.

Food prices , the largest contributor to the consumer index, rose 9.5 percent year-on-year in September after 8.7 percent the previous month.

“The biggest contributors to the consumer inflation were the high prices of electricity and food items … The rise in food prices was mainly due to the increasing costs of yam, cooking oil and fish,” an NBS document said.

The Central Bank of Nigeria (CBN) has been raising interest rates for more than a year to help curb high inflation and support the naira currency, which plunged to an all-time low this week.

CBN hiked its benchmark interest rate by a much bigger-than-expected 275 basis points to 12 percent and implemented several other tightening measures at an emergency meeting on Monday.

The naira recovered from the record low of 167.8 to the U.S. dollar on Monday, after the central bank sold around $1 billion into the market in the space of a week, traders said.

But trading on the local currency remains volatile and further weakness would add to inflation pressures. The naira was trading at 164.85 against the dollar mid-session on Friday.

“The acceleration of inflation in September validates the MPC’s significant tightening measures earlier this week,” said Yvonne Mhango, economist at Renaissance Capital.

“We expect the significant depreciation of the naira in October to compound the existing inflationary pressures, through higher imported inflation.”

Although monetary tightening measures are will help temper inflation in coming months, upward price pressures are on the horizon, including higher public spending and fuel prices.

Nigeria’s government unveiled a four-year fiscal plan this month, which showed spending in the 2012 budget will increase from this year, although the fiscal deficit should decline.

It also announced the forthcoming removal of fuel subsidies, which the government said cost the country 1.2 trillion naira ($7.5 billion) this year. The proposal is being debated by the national assembly.

The NBS said unemployment rose to 21.1 percent of the total labour force last year, up from 19.7 percent in 2009. This means there are almost 13 million Nigerians unemployed. ($1 = 160.250 Nigerian Naira)

(Reporting by Camillus Eboh; Writing by Joe Brock; Editing by Ruth Pitchford, Ron Askew)

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