Economists and other industry analysts say energy shock resulting from the U.S.-Iran hostilities are responsible for the first increase in inflation in the last 12 months.
They are afraid that with hostilities entering the sixth week, inflation would go higher. They say, the result may see the Central Bank of Nigeria holding benchmark rate when it meets May.
Nigeria’s headline inflation for March rose to 15.38 per cent in March from 15.06 per cent in February, according to the National Bureau of Statistics (NBS). This is the first increase in 12 months, signalling a reversal of the disinflation trend.
“The uptick was largely driven by elevated energy costs following the U.S.–Iran war. This triggered sharp increases in diesel, cooking gas, kerosene and PMS prices, significantly raising transport, logistics, and production costs across the economy”, said Bismarck Rewane.
Since the war on February 28, domestic diesel prices went up 88 per cent to N1,870 per litre and petrol price went up by 45 per cent to N1,270.
“Thse developments have significantly raised transportation and distribution costs, particularly for food and essential goods, as well as overall production costs for firms”, said Bismarck Rewane, Chief Executive Officer (CEO) of Financial Derivatives Company (FDC) Limited in its Economic Splash publication made available to Blueprint Newspapers weekend.
But other analysts say the situation is avoidable since we are an oil producing nation and the blockage of the strait of Hormuz should have little to do with Nigeria.
“We do not need to pass through that strait to bring crude oil to Dangote Refinery. As a matter of fact, with proper understanding, the conflict could easily have been a blessing to Nigeria”, Ademola Akin, a retired investment banker said.
“The initial pass-through of the energy cost pressures was limited, as firms absorbed part of the shock amid expectations of a short-lived conflict. However, the persistence of the energy shock is beginning to deepen its transmission into consumer prices, suggesting further upward pressure on headline inflation in April”, said Rewane.
He is worried that as the U.S.–Iran war persists, elevated energy prices are becoming more entrenched, reinforcing inflationary pressures.