Naira strengthens but prices stay stubborn: Why consumers aren't seeing relief yet

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 AprilThis 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.

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.

It is usually when they exhaust their old stock and purchase or manufacture new ones that the prices will adjust, all things being equal. That way, they do not unusually incur losses and cut into their profit margins by selling at a rate lower than the original cost price. For businesses in the service industry that do not sell physical products, additional considerations like high operating cost can contribute to price stickiness. Many service providers rely on imported goods and equipment for their daily operations, from office supplies and cleaning materials to tech hardware.Wages and salaries adjusted upwards when the naira was weaker may also not be reduced even with the stronger naira.

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