VANGUARD
There are indications that prices of goods and services may not come down soon despite the speedy appreciation of Naira against major foreign currencies in recent weeks.
On Thursday, US Dollars traded for N1,060, about N840 gain against N1,900 to US Dollar peak in February this year. But Vanguard findings show that prices of goods in the market are still on the rise contrary to the general expectations that with the continued positive trend in the exchange rate which started in late February, the market prices and general cost of living should be going down.
Most dealers and producers of goods and services blamed the high exchange rate for the spiral price increases in the market.
However, against the backdrop of the positive stability in the foreign exchange market, the National Bureau of Statistics, NBS, reported a further rise in inflation with a headline rate of 33.2 per cent in March as against 31.7 per cent in the previous month while food inflation rose to 40.02 per cent from 37 per cent.
Meanwhile, financial analysts and economists who spoke to Vanguard have indicated further rises in prices of goods and services in the months ahead before marginal stability can take place.
They also hinted that the current positive development in the foreign exchange market would have to be sustained over a longer period while other elements of the cost of doing business would have to come down before the impact of the lower exchange rate can positively affect the prices of goods and services.
Moreover, they explained that while price increases respond faster to upward increases in key factors of production, the reverse is the case when the factors are going down.
The analysts noted that positive exchange rate changes take time to trickle down to the prices of consumer goods. Explaining the discrepancy between the exchange rate stability against consumer price volatility, Victor Chiazor, Head, Research, FSL Securities, a Lagos-based investment house, said, ‘‘Apart from the time lag for the stability in the exchange rate to begin to reflect in the prices of goods and services, Nigerian price history shows that prices are sticky downwards but reflect immediately upwards.”
However, he gave further insight: “The rise in consumer goods prices was initially triggered by the currency devaluation along with high energy and transportation costs. But despite the recent appreciation of the Naira against the dollar, energy and transportation costs have remained high.
“Also, the appreciation in Naira will take some time to kick in before it begins to reflect in the price of goods and services.
“This price distortion shows how much dependence the economy has on foreign currency and shows that government policies towards locally manufactured goods in terms of infrastructure deficiency and incentives remain low.
“Just as we have seen inflation continue to rise despite consecutive increases in the monetary policy rate to curb it, the reality remains that the policy will require some time to kick in and take effect.
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