Nigeria's consumer inflation eased to 11.9 per cent in February compared to last year, an improvement on 12.6 per cent in January, despite the removal of fuel subsidies which had a more muted impact on prices than analysts expected.
The government scrapped subsidies on petrol imports on 1 January but was forced to partially reinstate them to quell protests over the costs of petrol. Fuel prices fell but stayed higher than they had been before the subsidy was removed.
The governor of the Central Bank of Nigeria (CBN) said in January he expected inflation to pick up to around 14-15 per cent in the first half of this year, before moderating towards single digits by the end of 2013.
"This will come as a huge surprise to the market and no doubt lead to much focus as to what was behind the outcome," said Razia Khan, Head of Africa Research at Standard Chartered.
"The increase in fuel prices no doubt had a contradictory impact on real disposable income. In some sectors, a slowdown in momentum had been evident for some time, so pricing power - the key ingredient needed to see a translation into any meaningful secondary impact - was largely missing," Khan added.
Food inflation, the largest component in the headline figure, eased to 12.9 per cent year-on-year in February, compared with 13.1 per cent in January, the data on Monday showed.
The CBN will meet to review policy on Tuesday. The unexpected easing in inflation in February strengthens analysts' views that the benchmark interest rate will be kept on hold at 12 per cent.