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Abuja - Nigerian inflation accelerated to the highest rate in almost 11 years in June, complicating the task of the central bank in an economy which is at risk of contracting this year.
The inflation rate in Africa’s largest economy increased to 16.5% from 15.6 in May, the Abuja-based National Bureau of Statistics said in an e-mailed statement on Monday.
That’s the highest rate since October 2005, according to data on the Central Bank of Nigeria’s website.
Prices rose 1.7% in the month. The median of seven economist estimates compiled by Bloomberg was for inflation to quicken to 16.2%.
Nigeria imports at least 70% of its refined fuel, despite pumping 1.6 million barrels of crude a day in June according to the International Energy Agency, and faced fuel shortages as retailers struggled to get foreign currency to buy product during a 15-month naira peg that was removed last month.
The currency’s official exchange rate weakened to more than 280 per dollar, compared with the fixed rate of 197 to 199, and the naira trades at around 360 on the black market, increasing prices for consumers.
"Inflation will continue rising because the driving factors are still there, but there should be a slowdown in the subsequent months," Babajide Solanke, an analyst at Lagos-based FSDH Merchant Bank, said by phone.
"Inflation may not necessarily cause monetary policymakers to increase rates, because that will hurt growth. They may choose to use other monetary instruments to tighten liquidity."
The naira weakened as much as 1.4% to 288.25 per dollar after the release of the inflation data. The currency was 0.2% stronger at 283.75 per dollar at 9:10 a.m. in Lagos on Monday.
The average price for a litre (0.26 gallon) of gasoline was 148.5 naira ($0.52) in June, 1 percent less than in May, according to a separate report from the statistics bureau. The June gasoline price was 32% higher than a year earlier.
Food prices rose 15.3% in June from a year earlier, compared with 14.9% in May. The highest increases were in the costs of fish and meat, fruit and vegetables and bread and cereals, the statistics office said.
"When inflation rises, nominal interest rates have to rise," Magnus Kpakol, Director at Abuja-based consultancy Economic and Business Strategies, said by phone. "It’s a bad time though to be increasing interest rates when the economy is weak."
The International Monetary Fund said this month Nigeria’s economy could contract for the first time in more than two decades this year as a fall in oil revenue and electricity shortages weigh on output.
Gross domestic product contracted by 0.4% in the three months through March as the naira peg and restrictions on trading foreign currency led to a shortage of dollars needed to import fuel and materials for manufacturers.
The Central Bank of Nigeria, which kept its benchmark rate at 12% in May, will announce its next policy decision on July 26.
Six of eight analysts in a Bloomberg survey forecast borrowing costs will stay unchanged.
