Economists predict that despite the recent appreciation of the naira, consumers should not expect an immediate drop in food prices.
According to economists, Nigerians may not immediately notice the effects of the recent increase in the value of the naira compared to the dollar on commodity prices within the country.
In an interview with Sunday PUNCH, Ayo Teriba, the Chief Executive Officer of Economic Associates, shed light on the time lag between the naira and its impact on prices.
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He mentioned that foods purchased at the previous exchange rate will continue to be linked to that rate.
“Whether a month or a quarter, it depends on the duration it takes to order and sell. The effect we should hope to see is that the prices have stopped going up. We call it acceleration.”
President of the Nigerian Economic Society, Adeola Adenikinju, emphasised the economic reasoning behind the decision to postpone price adjustments, expressing similar views.
According to Adenikinju, the current stock was bought at high prices. If they sell their products at reduced prices, they will end up incurring financial losses.
So, once a replacement is found, they will then consider reducing their prices.
“But currently, to avoid losses, they will still sell at the rate at which they bought it. We will only start seeing the current prices of things as current stock is sold and new stock is acquired.” He said.
Adenikinju suggests that the upcoming actions of the central bank will be influenced by the sellers’ behaviour.
“They will closely monitor the markets to assess if CBN can maintain the stability of the naira,” he expressed.
Nigeria is currently facing a significant challenge with soaring inflation. In February, the inflation rate reached 31.70 per cent, up from 29.90 per cent the previous month. This increase was mainly driven by a surge in food prices, with food inflation rising to 37.92 per cent.
In an effort to address the issue of rising inflation, the Central Bank of Nigeria increased the benchmark interest rate from 18.75 per cent to 22.75 per cent in February. This was followed by another upward revision to 24.75 per cent on Tuesday.
Professor of Economics at Babcock University, Onakoya Adegbei, explains that the phenomenon of prices consistently rising without a decrease is not unique to Nigeria.
According to him, a decrease in production typically takes time to happen due to inflexibility in the production process.
He highlighted that the delay is often influenced by market expectations.
“There is usually a lag and that is due to the expectation theorem. For example, if you expect the price of rice to increase, you will buy more and keep it in the house, So, it will increase your demand. But if you expect that prices will fall, what you already have you cannot dispose of.
“Reduction in production usually comes with a lag because of rigidity in production. If you already produce a certain product at a certain price and the price in the market is falling, you will then wait to see if the reduction will be sustainable. If you see that it is sustainable, then you can make a move to reduce the prices of your product. It is a lag effect,” Adegbei explained.
Favour Uche, a foodstuff seller at EFAB market, expressed her frustration, stating that the price of rice has not decreased despite the decline in the value of the dollar.
Uche highlighted the difficulties that traders encounter, such as the costs involved in preserving product quality despite limitations in infrastructure.
“The price of rice didn’t decrease. Even now that the dollar is down, it still hasn’t reduced. For example, a carton of Titus fish cost N90,000 two weeks ago but today, the same carton of fish is sold at N95,000 as of March 29, 2024.
“Even with the fact that the dollar has reduced, but being in the system, I think I understand why. It is because they use one-third of their profit to buy diesel to cool these fish and keep them frozen. After all, there is no light. So, I understand their pain and why the prices are like that,” she added.
According to Abdul Yusuf, a meat trader, prices remained unaffected despite the decline in the value of the dollar.
“Two weeks ago the price of one kilogramme of meat was selling at N4,800 but now, it is N5,000. So, the price did not come down even with the dollar falling.”
