Life is getting tougher for Nigerians. Inflation hit its highest level since 2005 in January, running at an unexpectedly high 18.7 percent.
The official value of the naira currency, meanwhile, has plunged since last June when its peg to the dollar was dropped. The black market price is also at a new low.
The two go hand in hand, of course, as clearly seen in this graph on the two sets of data.
But the graph also shows there was substantial inflation during the 2008-2012 period while a currency peg was in place. In theory, a relatively strong peg should have kept inflation at bay.
One reason for the previous inflation was the 16 percent devaluation of the currency in 2008.
But after that, according to Esili Eigbe, head of Nigerian equities at Exotix in Lagos, inflation stayed high because that was probably the “normal” level.
It could well be that the 2012-2015, when inflation dipped, was the outlier. Given the higher level of inflation following the 2008 devaluation, the current spike does not bode well for Nigerians.
– By REUTERS