Fuel drives Nigeria inflation, Ukraine war seen raising food prices

Nigeria’s inflation rose by 0.1 percentage points to 15.70% in February, the statistics office said, after fuel shortages increased transport and other costs, while the war in Ukraine is expected to drive up the price of imports such as wheat.

Lagos based Nuli Juice Company, which also owns restaurants, is among those affected by the cost of diesel, which it said climbed to 680 naira ($1.64) a litre from 215 naira in a matter of weeks.

“This is not a good time for businesses. We are hoping that we never shut down, but if the situation continues this way, it is making the business more and more difficult,” Chinyere Onyia, the company’s head of quality, production and procurement, said.

Russia’s invasion of Ukraine last month has added to volatility in financial markets, sending commodity prices higher and affecting logistics, potentially derailing the economic recovery from COVID-19 in Nigeria and elsewhere.

A halt in grain exports from major producer Ukraine could have a severe impact on Nigeria.

Wheat was Nigeria’s second biggest import during the fourth quarter after petrol, the statistics office said on Tuesday.

A surge in international crude prices is theoretically positive for Nigeria as an oil exporter, but it still faces extra costs as it depends almost entirely on imported gasoline, which it subsidies.

“In the long run, we may not be gaining (from high oil prices) because of the tendency of bringing in inflation into the country,” Simon Harry, head of the National Bureau of Statistics, said on Tuesday.

Victoria Laadi, owner of a cement brick factory that uses diesel for his machinery and for transportation, said he was already feeling the effect.

“There is no customer that is ready to pay the increment so it is affecting our business. For like a week or two now I have not worked,” he said.

Nigeria’s inflation has been in double-digits since 2016, impacted by food-related pressure and currency weakness.

Analysts expect flour prices to climb to 30,000 naira ($72) per bag next quarter from 22,000 naira as wheat prices rise.

The central bank is scheduled to meet next week to set interest rates and could face pressure to reconsider its dovish stance given the persistent double-digit inflation.

($1 = 415.45 naira)

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