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Minimum wage, VAT, Okada ban pressure inflation

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•As January rate rises to 12.13%

•More pressure from higher electricity tariff in April

•Sokoto, Ondo lead in inflation

Minimum wage, VAT, Okada ban pressure inflation

By Elizabeth Adegbesan

As Nigeria’s inflationary trend records the fifth consecutive month rise in January 2020 readings released by the National Bureau of Statistics, NBS, Tuesday, analysts’ reports have indicated that the sixth month straight rise would hit 12.32 percent by end of this month.

This is attributed to continued border closure; implementation of N30,000 national minimum wage; implementation of the new Value-Added-Tax (VAT) rate of 7.5 percent; low interest rate; and the recent ban of motorcycles and tricycles in Lagos State, which has pressured transportation cost.

In its latest Consumer Price Index (CPI) report for January 2020, NBS stated that inflation rate rose Year-on-Year, YoY, by 0.15 basis points to 12.13 percent in January 2020 from 11.98 percent in December 2019.

On Month-on-Month, MoM, basis, headline inflation rate increased by 0.87 percent in January 2020, representing a 0.02 basis point rise from 0.85 percent in December 2019.

READ ALSO: Inflation Rises by 12.13% in January – NBS

In July 2019, MoM inflation rate stood at 11.08 percent from where it dropped to 11.02 percent in August, it went up to 11.24 percent in September, had continued on upwards trend since then accumulating 1.11 percentage point uptick as at January 2020.

The Bureau cited increases in prices of bread and cereals, meat, oils and fats, potatoes, yam and other tubers and fish as cause for the rise in food index.

According to NBS, YoY rise in food inflation in January 2020 was highest in Sokoto (19.08 percent), Ogun (18.72 percent) and Nasarawa (17.07 percent), while Bayelsa (12.91 percent), Delta (11.57 percent) and Benue (11.33 percent) recorded the slowest rise.

On monthly basis, January 2020 food inflation was highest in Ondo (2.95 percent), Anambra (2.61 percent) and Abuja (2.57 percent), while Benue, Kogi and River recorded slowest rise.
Analysts comments

Commenting on the outlook analysts at United Capital Management Plc stated: “Looking ahead, we expect the headline inflation rate to remain pressured in February 2020, no thanks to the continued closure of the border, implementation of the new N30, 000 national minimum wage, upward revision in VAT, rising level of financial system liquidity as well as increasing cost of commercial transportation in Lagos amid the ban on tricycles and motorcycles across the state.

“Further pressure point also lies ahead; as the Nigerian Electricity Regulatory Commission (NERC) has directed the 11 electricity distribution companies (DisCos) to hike their tariffs by an average of 50 percent on April 1, 2020.

“Factoring all the above-mentioned factors, we anticipate YoY inflation to increase from the current 12.13 percent to 12.32 percent in February 2020, while MoM inflation will rise from 0.87 percent to 0.90 percent.”

Similarly, analysts at Cowry Asset Management said: “‘We expect general prices levels to increase further in the next few months as the sowing season kicks off and as core inflation builds chiefly due to the rise in transportation cost (especially in Lagos) and increase in VAT. Also, the lower interest rate environment amid adoption of new minimum wage could spur consumption activities and subsequently, demand pull inflation.”

Vanguard Nigeria News

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