Nigeria’s consumer price index (CPI), which measures inflation, increased by 12.13 percent (year-on-year) in January 2020, for the fifth time, according to data released by the National Bureau of Statistics Tuesday, raising prospects of a new tightening around by the monetary authorities.
it is the fastest increase in the price level in 20 months, according to the statistical agency.
 “This is higher than the rate recorded in December 2019 (11.98) percent. On a month-on-month basis, the Headline index increased by 0.87 percent in January 2020, this is 0.02 percent rate higher than the rate recorded in December 2019 (0.85) percent,” NBS said.
It said the percentage change in the average composite CPI for the twelve months period ending January 2020 over the average of the CPI for the previous twelve-month period was 11.46 percent, showing 0.06 percent point from 11.40 percent recorded in December 2019.
The increase in consumer prices surpassed expectations as analysts polled by BusinessDay expected inflation to rise between 12.01 and 12.03 percent.
While core inflation also rose, pressure on food prices suggests that the impact of the border closure is still lingering.
In its first meeting for the year, the MPC increased the mandatory percentage of deposit (Cash Reserve Ratio) that banks kept with the CBN by 500 basis points to 27.5 percent in a bid to rein on rising inflation now 313 basis points above CBN’s preferred maximum.
The new inflation rate will likely intensify pressure on the MPC members to raise the main interest rate for the first time since 2016.
Analysts at Lagos-based Financial Derivatives Company (FDC) said in January that if the higher VAT led to a spike in inflation in January, the CBN’s Monetary Policy Committee (MPC) would be left with no alternative but to commence a tightening cycle and raise the MPR.
Although the VAT law came into effect on February 1, the inflation level in January would see the CBN continue to use other policy tools to mop up rather than the Monetary Policy Rate (MPR), an analyst told BusinessDay.
“I don’t think MPC will hike the main interest rate when next they meet because inflation is still below the monetary policy rate,” said Omotola Abimbola, an analyst at Lagos-based Chapel Hill Denham.
According to Abimbola, the CBN would likely act on the liquidity front given that there was a wage increase in January that increased money supply as well as OMO and bonds maturities that injected more money into the economy.
“The CBN has done up to three debits on banks since it raised the CRR in January,” Abimbola said.
When the MPC meets in late March for its second meeting in 2020, the committee members will have to weigh the impact of possible tariff adjustments and access the effect of the new VAT in addition to the existing pressures on price levels.
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