Over the past few weeks, the naira has appreciated from a record low of around N1,900/dollar to N1,148/dollar as of April 12, prompting the US investment bank, Goldman Sachs, to pronounce it the best performing currency in the world in April.
This has come as a reprieve to many Nigerians who have been battered by the negative effects of the seemingly perpetual and unstoppable depreciation of the naira against the dollar. One of the areas where Nigerians have felt the pangs of the weak local currency is in the prices of goods and services. Prices of everyday goods, including staple foods and household items, seemed to soar with every visit to the market. This also manifested in higher transportation costs, utility bills and other services.
This synchronized rise in the prices of goods and services with the depreciation of the naira is largely a result of the country’s huge dependence on imported goods.
A large chunk of all the products used in the country are imported, including many consumer and industrial goods like milk, sugar, petrol, vehicles, and machinery. It is unsurprising then that the prices go up as the cost of importing them becomes higher.
Even service providers, who do not directly sell imported goods, will be forced to hike their prices in such a scenario in order to remain profitable as they utilize one imported product or the other in their day-to-day operations. This creates a vicious cycle that fuels inflation.
But, as many of you have wondered, why haven’t the prices of goods and services come down since the naira has strengthened steadily against the dollar and other major global currencies in the past few weeks? Well, this is related to a variety of factors, including price stickiness.
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