By Okechukwu Nnodim with agency reports

Nigeria’s headline inflation unexpectedly fell in July, data showed, reaching its lowest level for more than three years following an aggressive period of monetary tightening by the Central Bank of Nigeria.

Gains in consumer prices eased to 9.4 per cent year-on-year from 10.2 per cent in June, the National Bureau of Statistics said on Tuesday.

Reuters reported that food prices, the biggest contributor to the price index in Nigeria, fell to 7.9 per cent in July compared with 9.2 per cent the previous month.

The drop in inflation took many analysts by surprise. A Reuters poll last week forecast a figure of 10.7 per cent.

CBN has been implementing a monetary tightening policy for months in an effort to get inflation into single digits, lifting its benchmark interest rate to 8.75 per cent last month in the fourth hike this year.

While the drop in inflation below its notional target will please the apex bank, it will be wary of core inflation that remains at 11.5 per cent.

Core inflation excludes some volatile components such as food and energy. The drop in food inflation, which is seasonal, will have contributed heavily to the fall in the headline figure.

The CBN has been balancing the need to curb inflation while promoting growth in sub-Saharan Africa’s second-largest economy and reducing high unemployment.

Governor, CBN, Mr. Lamido Sanusi, has expressed concerns about the global economic downturn and the likely impact on demand for Nigeria’s crude oil, its main source of foreign currency.

“Looking forward, we expect CPI inflation to remain around current levels over the coming months, which we believe will provide some level of comfort to the (bank’s) Monetary Policy Committee,”a research analyst at Morgan Stanley, Andrea Masia,said.

The headline inflation figure was the lowest since a reading of 8.2 per cent in April 2008.

Increased liquidity is expected to have an impact on future inflation after a record N1tn was distributed from federal accounts to the three tiers of government for June.

The surprise decision to nationalise three banks this month, prompted the Asset Management Corporation of Nigeria to inject N679bn into the three banks on Monday, adding to liquidity flows.

Meanwhile, the naira weakened further against the dollar on Monday on the inter-bank market after demand outweighed supply at a bi-weekly foreign exchange auction.

Our correspondent gathered that the naira traded at N153.90 to the dollar on the inter-bank market, compared to 153.60 per dollar at Friday’s close.

The Central Bank of Nigeria sold $400m at N151.07 to the dollar at its auction, which was short of the $592.04m demanded but higher than the $250m sold at N150.75 to the dollar at the previous auction.

According to traders, the unmet demand at the official window was re-directed to the interbank market, putting pressure on the naira and causing the local currency to depreciate.

The local currency had closed at N154.04 to the dollar last Wednesday, but strengthened to N153.60 by Friday after some oil firms sold dollars to selected lenders during the week.

“The strong demand for the greenback was due to increased activity by gasoline importers and some manufacturing firms importing raw materials for their production,” a dealer told Reuters.

Dealers said the local unit of Chevron sold $46m to lenders on Monday, but that was not enough to support the naira.

Source: Punch