EXPLAINER: Why a stronger naira is not leading to lower prices of bread, rice, millet others

IN recent weeks, Nigeria’s currency naira has been strengthening against the dollar, but this is not leading to lower prices for bread, rice, millet, and other commodities prices in Nigeria, findings have shown.

To state the least, the prices of goods and services in Nigeria have continued to soar despite the gains of the Naira against the dollar in the foreign exchange market.

According to the National Bureau of Statistics (NBS), headline inflation jumped to 33.20 per cent in March, and food inflation surged to 40.01 per cent.

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Several factors such as a global surge in energy prices triggered by the Russian-Ukraine War, Nigeria’s food importation bill, and insecurity in Nigeria’s food belt have been identified as factors that affect rising commodity prices.

The implication is that Nigerians continued to pay more for food and other services in March despite the appreciation of Nigeria’s naira against the dollar.

The naira exchange rate against the United States dollar has sustained its rally as it appreciated a seven-month high to close at N1000/$1 on the parallel market.

On the Nigerian Autonomous Foreign Exchange (NAFEM) official window on Monday, also, the naira extended its upward trend, maintaining its one-month gain as it closed at N1,136.04/$, gaining N6.32, compared to the N1,142.38/$1 it closed on Friday.

The national currency’s appreciation came as the NBS disclosed that the Consumer Price Index (CPI), which measures the rate of change in prices of goods and commodities, further increased to 33.20 per cent in March 2024, compared to 31.70 per cent in February.

The appreciation recorded by the naira against the greenback on the parallel market marked the first time the naira reached this level since September 26, 2023.

The daily foreign exchange (FX) turnover, however, saw a decline of 10.57 per cent, reaching $251.60 million on Monday, compared to the $281.34 million recorded on Friday.

Furthermore, the highest spot rate observed on Monday stood at N1,227, with the lowest spot rate recorded at N1,000

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What NBS says about commodity price surge

According to the NBS, the rise in food inflation on a year-on-year basis in March was caused by increased prices of Garri, millet, bread and cereal, yam, dried fish, meat, and fruits.

“On a month-on-month basis, the good inflation rate in March 2024 was 3.62 percent which shows a 0.17 percent decrease compared to the rate in February 2024 (3.79 percent),” NBS said.

NBS found that the decline in food inflation on a month-on-month basis was caused by a fall in the rate of increase in the average prices of Guinea corn flour, Plantain Flour, among others(Under Bread and cereal class), Yam, Irish Potatoes, Cocoa Yam, Irish Potatoes, Cocoa Yam(Under Potatoes, Yam and other Tubers class), Titus fish, Mudgish Dried(Under Fish Class), Lipton, Bournvita, Ovaltine(Under Coffee, Tea and Cocoa class)

Why Naira appreciation is not affecting commodity price deceleration

Despite the naira’s appreciation against the dollar economy watchers listed rising global energy prices, structural challenges(Poor state of rural roads infrastructure), and insecurity in Nigeria’s food belt as a major cause of rising food inflation.

File Photo of a typical Nigerian market
File Photo of a typical Nigerian market

A development economist, Kalu Aja, frowned at the rising food inflation, adding that, “40 per cent food inflation is overwhelmingly high for the Nigerian economy and at N30 000 minimum wage, many Nigerians would be struggling to feed.”

According to Kalu, “The naira strengthening doesn’t solve the problem of rising food prices because there’re structural problems of insecurity, poor road infrastructure, poor storage facilities and insecurity around Nigeria’s food belt.

He added, “We have to increase the supply of goods to the economy to bring down the food inflation. This is the time to allow the security guys to help farmers increase their food production. Harvest yields are down, farmers cannot farm.”

Commenting further on why commodity prices are increasing, despite naira’s appreciation, a senior economist at Stears Incorporated, Dumebi Oluwole said, several factors such as a global surge in energy prices and high importation costs influence commodity price rise.

“We are all witnesses to how Geo-political tension spill over to Nigeria. The issue with the Swiss canal, and rising global Energy prices as a result of the Russian-Ukraine Invasion, would feed into the global inflation outlook in Europe and America.

She stressed that these have implications for higher importation costs for Nigeria despite Naira’s appreciation against the dollar.

She further cited petrol import into the country as a trigger to higher commodity prices, adding that Dangote refineries’ coming on stream will take time before it influences commodity price decrease.

She noted that the electricity tariff increase would also affect companies that would factor in ‘energy price’ in their production costs for their respective commodities.

“You see a recent tariff increase that targeted band A users where the majority of Industrial clusters are. They will capture their energy price into their commodity pricing.

“Most of these companies purchase diesel and essentially the escalation of diesel price is affecting commodity prices and it’s not a good experience for the Nigerian consumers,” Dumebi added.

Bread manufacturers are also complaining of the high cost of running the business and poor access to funds at single-digit interest rates from commercial banks.



    They also cited the Russian-Ukraine war as a major factor that affected the high spike of their raw material for bread production.

    “Banks are running like carpet baggers and are not funding businesses like ours. The high cost of diesel, sugar, flour, wheat, and other costs for making bread is why bread prices are rising in Nigeria, “the President of the Premium Bread Makers Association of Nigeria, Emmanuel Onuorah said.

    Notably, the Central Bank of Nigeria (CBN) target for 2024 is 21.4 percent, with Governor Olayemi Cardoso stressing at the last monetary policy committee meeting in March that the apex bank’s target is to improve the purchasing power of Nigerians by lowering inflation.

    Analysts say this may not be achieved unless the interest rate is revised downward from its present 22.5 per cent by the apex bank which makes lending to businesses by commercial banks at single digits a difficult target.

    Harrison Edeh is a journalist with the International Centre for Investigative Reporting, always determined to drive advocacy for good governance through holding public officials and businesses accountable.

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