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Minimum wage, salary reviews, energy cost may alter price stability


Aerial view of buildings and markets on Lagos Island.

•Inflation sustains rising profile, hits 11.44 per cent
The headline inflation for December moved further to 11.44 per cent, but may be escalated with a combination of improved minimum wage, alongside fuel and energy price hike, if unchecked.

Though the new minimum wage and proposed salary reviews are expected to improve consumer spending, there are concerns that such increment, alongside fuel and electricity price hikes, may prolong deceleration of the nation’s inflation numbers.

According to the National Bureau of Statistics (NBS), average price paid by consumers for automotive gas oil (diesel) increased by 0.92% month-on-month and 7.25% year-on-year to N221.56 in December 2018 from to N219.54 in November 2018.


Indeed, the consumer price index, (CPI) which measures inflation increased by 11.44 percent (year-on-year) in December 2018, 0.16 per cent points higher than the rate recorded in November 2018 (11.28 per cent).

Despite improvements in harvest yields and availability of farm produce, the composite food index rose by 13.56 per cent in December 2018, compared to 13.30 per cent in November 2018.

The “All items less farm produce’’ or Core inflation, which excludes the prices of volatile agricultural produce, stood at 9.8 per cent in December 2018, maintaining the same rate recorded in November 2018.

On month-on-month basis, the Headline index increased by 0.74 percent in December 2018, up by 0.06 percent points from the rate recorded in November 2018 (0.80) percent.

The percentage change in the average composite CPI for the twelve months period ending December 2018 over the average of the CPI for the previous twelve months period was 12.10 percent, showing 0.31 percent point from 12.41 percent recorded in November 2018.

The urban inflation rate increased by 11.73 percent (year-on-year) in December 2018 from 11.61 percent recorded in November 2018, while the rural inflation rate increased by 11.18 percent in December 2018 from 10.99 percent in November 2018.

On a month-on-month basis, the urban index rose by 0.76 percent in December 2018, down by 0.07 from 0.83 percent recorded in November 2018, while the rural index also rose by 0.72 percent in December 2018, down by 0.06 percent from the rate recorded in November 2018 (0.78) percent.

According to the NBS, the rise in the food index was caused by increases in prices of soft drinks, Fish, Bread and Cereals, Oils and fats, Coffee, tea and cocoa, Meat, Milk, Cheese and egg, Vegetables, Potatoes, yam and other tubers.

Commenting on the data, experts at Cordros reiterated that the implementation of the new minimum wage, currency devaluation, as well as PMS and electricity price hikes, as notable upside risks to inflation in 2019, with year-end forecast of 13.55% year-on-year.

“With minimum wage still hanging in the air, we expect the dual impact of slight uptick in core inflation and faster deceleration in food basket to midwife a reversal in the headline inflation trend in January.

“For us, on account of a steeper decline in demand for farm produce following the end of festive season, we expect m/m food inflation to moderate slightly by 2bps to 0.79%.


“However, whilst we expect FX to remain largely range-bound, together with tame energy prices, we see scope for mild uptick in the m/m core inflation (+15bps to 0.65% m/m) as election related spending intensifies. Overall, we look for January m/m headline inflation of 0.73%, translating to y/y figure of 11.37%”, they added.

On month-on-month basis, the food sub-index increased by 0.81 percent in December 2018, down by 0.09 percent points from 0.90 percent recorded in November 2018.

Indeed, the highest increases were recorded in prices of Domestic services and household services, Dental services, Garments, Narcotics, major household appliances whether electronic or not, medical services, cleaning, repair and hire of clothing and Tobacco.

The average 12-month yearly rate of change of the index was 10.51 percent for the twelve-month period ending December 2018; this is 0.19 percent points lower than 10.70 percent recorded in November.

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