Nigeria's inflationary rate has increased from 11.8 per cent in December 2010 to 12.1 per cent in January 2011, according to figures released by the National Bureau of Statistics (NBS).

Meanwhile, the International Monetary Fund (IMF) has asked the Central Bank of Nigeria (CBN) to increase the interest rate further to enable it curb inflation after public spending soared.

Continuing, NBS said that the urban All Items Monthly Index declined by 1.4 per cent while the Corresponding Rural Index increased by 3.3 per cent when compared with the preceding month. Whereas the monthly change of Consumer Price Index was a 1.20 per cent increase when compared with December 2010.

The year-on-year average Consumer Price Level as at January this year for urban and rural dwellers rose by 7.9 and 15.6 per cent respectively.

The percentage change in the average composite CPI for the 12 month period ending January 2011 over the average of the CPI for the previous 12 month period was 13.5 and was slightly lower than the figure for the preceding month.

It further stated that the average monthly food prices marginally declined by 0.9 per cent in January 2011 when compared with December 2010 figure. "The level of composite food index was higher that the corresponding level a year ago by 10.3 per cent. While the average annual rate of rise of the index was 14.2 per cent for the 12 month period ending January 2011," it said.

The reason for the increase in inflationary rate, according to statisticians and market survey, was caused by mainly the recent increase in some household items like kerosene and building materials.

According to the NBS, the "All items less than Farm Produce" index which excludes the prices of agricultural products increased by 1.7 per cent in January 2011 when compared with December 2010.

In the twelve-month to January 2011, the index rose by 12.1 per cent while the average annual rate of rise of the index was 12.4 per cent for the twelve -month period ending January 2011.

A statement from IMF, which was posted in its website said that the naira was overvalued and more exchange rate flexibility was needed to prevent CBN from running down foreign currency reserves to fix the rate, adding that Nigeria's economy is forecast to expand 7 per cent in 2011.

It further pointed out that the CBN, led by Sanusi Lamido Sanusi, raised the benchmark interest rate by a quarter point to 6.5 per cent on January 25 to head off price pressures as fiscal spending increased before elections in April.

According to IMF, public expenditure surged by 37 per cent last year; after increasing to 10 per cent in 2009.

"Nigeria's strong external position and low debt helped mitigate the impact of the global financial crisis," the IMF said, adding that a pro-cyclical fiscal stance and an accommodative monetary policy have resulted in high inflation and a loss in international reserves.

It said that Nigeria's inflation rate accelerated for the first time in five months in January, reaching 12.1 per cent from 11.8 per cent in the previous month, the statistics office said today. The inflation rate will probably ease to 9 per cent by the end of 2011.

"Further monetary tightening may be needed should inflation pressures continue. Moving gradually toward an inflation-targeting regime, once the necessary institutional underpinnings are in place, would help anchor infl

ation expectations," it said. Nigeria's foreign currency reserves plunged by almost $10b to $33.1 billion in the year through November 29, and reached $34.5b on February 11, according to data from the CBN.