For February 2020, inflation rate rose by 0.07 percentage points to 12.20 percent from 12.13 percent recorded in January 2020, according to data released Tuesday by the National Bureau of Statistics (NBS).
The current inflation rate is the highest in 22 months.
Ibrahim Tajudeem, head of research, Chapel Hill Denham, said, “I expect inflation to increase further because of the Value added Tax (VAT), possible impact of wage increase, and depreciation of the naira. Right now, we are beginning to see the depreciation of the naira in the parallel market.”
Nigeria increased its VAT rate to 7.5 percent from 5.0 percent, which was implemented last month. Basic food items were part of the items excluded from VAT.
Core inflation, which excludes the prices of volatile agricultural produce, stood at 9.43 percent in February 2020, up by 0.08 percent when compared with 9.35 percent recorded in January 2020.
Analysts expect core inflation to increase further due to countries closing their borders to combat the coronavirus and probable pressure on foreign exchange from the collapse in oil prices.
“The border closure remains a major driver of the continuous uptick in food inflation, but the magnitude of impact is fizzling out,” said Damilola Adewale, a Lagos-based economic researcher.
“The non-food items that we import will begin to become scarce, thus increasing the core inflation further.”
Exchange rate stability is a major driver of core inflation because most of the items in non-food category are largely imported. And foreign exchange has been under pressure due to weak global oil prices, which led to a fall in the naira to a record low of N374 per dollar last week on the Investor & Exporter window.
Food inflation, popularly known as food prices, rose at a slower pace on monthly basis in February 2020, an indication that the impact of border closure on food prices is gradually fading, analysts say.
According to the NBS, food prices accelerated to almost a two-year high of 14.90 percent in February as against 14.85 percent in the preceding month, while monthly readings show a moderation of 0.87 percent in the reference month compared with 0.99 percent in January.
The closure of the border in August last year by the government to stop Nigeria from being a dumping ground for imported products and boost patronage of locally made products, hiked food prices.
From the NBS data, the percentage difference of 0.87 is the lowest since February 2019.
“The market is gradually adjusting itself. When the borders were shut, it made local producers to focus on increasing production and capacity so that they could increase supply,” Ayorinde Akinloye, a consumer analyst at CSL Stockbrokers, said.
Food inflation contributes more than 50 percent to CPI Index. The rise in food index was caused by increases in prices of Bread and Cereals, Fish, Meat, Vegetables, and Oils and fats.
BUNMI BAILEY
