AFRICA'S LARGEST ECONOMY CAN'T KEEP INFLATION UNDER CONTROL

A girl at a local Islamic school in Zaria in Nigeria's
Kaduna state on February 2.

Africa's largest economy is failing to keep inflation under control.

Nigeria's inflation accelerated to 16.5% in June, up from 15.6% in the previous month, according to the National Bureau of Statistics.

That's the highest rate since October 2005 and above economists' expectations of an increase to 16.2%, according to the Bloomberg consensus.

The sharp increase in inflation comes after Nigeria finally did the painful thing everyone said it had to do: unpeg the naira from the US dollar.

And some analysts think inflation could rise even more in the coming months.

"With the currency expected to come under further pressure in coming months, we expect inflation to rise further to close to 20% year-over-year by year-end," Barclays' Ridle Markus and Dumisani Ngwenya said in a note to clients.

The naira's official exchange rate fell to over 280 per dollar, compared with the pegged rate of about 198 per dollar, when trading opened on the day of the devaluation in late June. It now sits at about 282 per dollar, but it trades near 360 per dollar on the black market. (Notably, economist Nonso Obikili has expressed suspicions about whether the currency has been properly floated.)

"Looking at the naira in relation to other major oil-exporters' currencies such as the Russian ruble, it appears that the Nigerian currency still has some way to fall to properly reflect the effects of the oil price slump over the past several years," a BMI Research team said.

"This is especially the case given that the depreciatory effects of lower global oil prices are being exacerbated in Nigeria by falling production."

Notably, Nigeria was struggling to rein in inflation even before the naira's devaluation. At the time, this was attributed largely to the government's controversial agenda of currency and price controls, including on petrol.

Moreover, the country's economy shrank by 0.4% in the first quarter year-over-year, prompting economists to note that Nigeria "is headed into a full-blown economic crisis" in late May.

And the scariest thing about that gross-domestic-product number is that it doesn't factor in any of the debilitating problems Nigeria has seen in the second quarter, including but not limited to the fuel-shortage crisis and some of the oil-production disruptions by the Niger Delta Avengers.

Business Insider