Nigeria inflation soars, government reviews currency policy

Inflation in Nigeria rose to a more than six-year high in May, official figures showed Tuesday, heaping pressure on the government to loosen restrictive currency controls.

The inflation rate rose to 15.6 percent, pushed up by higher gas, electricity and fuel prices, the National Bureau of Statistics said in an emailed statement.

The NBS attributed the rise to "an overall increase in general price level across the economy", which has been battered by the global fall in oil prices since mid-2014.

Food continued to be more expensive, with imported food up 18.6 percent, indicating persistent difficulties for importers to source foreign exchange because of the weak naira.

The Central Bank of Nigeria has pegged the naira at 199 to the US dollar since March last year but has come under pressure to devalue the currency further.

Black market rates have seen the naira slump to as low as 365 to the dollar this week. 

A decision on a possible dual exchange-rate system is expected on Wednesday. 

"New FX policy will be announced tomorrow afternoon by @cenbank Governor, Godwin Emefiele," said the presidency in a tweet posted Tuesday evening. 

President Muhammadu Buhari said he backed the move to "greater flexibility" in forex policy, calling it "a downpayment on our people's ability to succeed".

He is keen to ween Africa's biggest economy off its dependency on oil, which normally accounts for 70 percent of government revenue, as well as imports.

But with an imminent recession and crude production hit by militancy in the Niger delta, he faces a challenge to get the economy moving again.

"Nigeria's fixed exchange rate regime had merely pushed activity to the parallel market, which is prone to overshooting, less susceptible to formal policy tightening, and likely played a significant role in exacerbating current price pressure," Standard Chartered Bank economist Razia Khan said in an emailed note to clients.

"The challenge for the authorities is how to go about normalising the FX regime in their bid to resolve fuel and other supply bottlenecks that have constrained growth while driving inflation higher."