The consumer price index (CPI), which measures inflation, rose by 12.13 percent (year-on-year) which is the fastest in almost two years, according to data released by the National Bureau of Statistics.
Food inflation accelerated to 14.85 percent in January, the highest since March 2018.
The increase in VAT from 5 percent to 7.5 percent which took effect in February alongside expected electricity tariff hike will continue to pressure consumer price in the near future.
Inflation is sticky downwards
Consumer price rose for the fifth straight month which is the longest unbroken upward trend since a 15-month steady rise in inflation which ended in January 2017.
This suggests that the impact of the border closure is weakening slower than expected, especially since the January inflation figure exceeded expectations of several analysts.
Inflation has gone from its lowest in 43 months in August (before the border closure forced food price up), to the highest level in 21 months.
The CBN’s Monetary Policy Committee (MPC) in January called on the fiscal authorities to join in the fight to stem the surge in price levels.
Inflation seen neutral on equities
While a 500 basis point increase in the mandatory percentage of deposit (Cash Reserve Ratio) that banks kept with the CBN at zero interest triggered a sell-off on banking stocks in January and dampened sentiments on equities, the jump in inflation will unlikely lead to higher CRR, analysts say.
Gbolahan Ologunro, equity analyst at Lagos-based CSL Stockbrokers told BusinessDay the Central Bank would likely maintain its CRR at 27.5 percent to avoid contradicting its policy to boost lending in the economy.
Instead, the analyst said CBN would employ other methods – including unconventional ones to address inflation, noting the limitation of the apex bank given the supply-sided factors responsible for the recent surge in inflation.
Analysts at Cordros Capital and Chapel Hill Denham shared a similar view, with the latter not seeing any increase in Monetary Policy Rate in March.
A hike in CRR late January crunched liquidity and forced NTBill rates up as money market rates adjusted to limited liquidity for banks, thus luring investors back to the short-term bonds market.
The CBN had moved to raise the CRR in a bid to rein on rising inflation, now 313 basis points above CBN’s preferred maximum.
While there are minimal risks to equities from a CRR or MPR hike, analysts say investors are concerned about weak corporate earnings already reported amid a challenging economy even though higher inflation has lowered real returns on bonds.
Bauchi has the highest inflation, Kwara least
Consumer price rose by 15.88 percent year-on-year in Bauchi, the most among the 36 states including Abuja for January.
Sokoto noted the second-highest inflation rate nationwide at 15.2 percent while Kebbi, Niger and Anambra saw inflation print at 14.37 percent, 14.23 percent and 14.13 percent each.
On the other hand, states with the lowest rate are Kwara (9.49%), Benue (9.61%), Delta (9.95%), Borno (10.44%) and Abuja (10.71%).
