Attempt to hike fuel price ‘ll trigger inflationary pressures in H2 –analysts

A group of analysts at ARM Research have expressed fear that possible hike in price of premium motor spirit (PMS) commonly called petrol could likely fuel fresh inflationary pressures in second half of 2019.
The National Bureau of Statistics (NBS) had disclosed that inflation rate 11.44 per cent for December 2018, highest peak of 15.13 per cent reported by the bureau in January 2018.
The renowned research agency projected that naira would remain stable for most part of the year due to the weekly foreign exchange intervention of the Central Bank of Nigeria (CBN).
The Lagos based research company in its latest report said, “As tested, there is a strong relationship between PMS and core Consumer Price Index (CPI) thus, higher PMS prices could likely fuel fresh inflationary pressures in second half of 2019.
In framing our outlook on Inflation, we analyzed the possible source of shocks to the CPI over 2019.We assessed the impact our view on the currency would have on the price level, possible increase in petrol (PMS) prices, a raise in electricity tariff and the introduction of a wage increase by the FG.
Starting with our view on currency, while we believe the naira would remain stable for most part of the year as the apex bank sustains its market intervention, we believe its intensity would reduce as accretion to the reserves would drop due to our expectation of lower oil receipts in the fourth quarter of 2019.”
They predicted that average foreign exchange rate might be trading at N368.02 to a dollar for the year.The report by ARM Research said, “With regards to electricity tariff, given frequent kick-backs by the FG and other groups with regards to an increase in general tariffs, especially with the FG holding the view that the sector players are yet to satisfy the conditions that accompanied the previous electricity review and therefore holds off the implementation of an electricity hike.
“Based on the foregoing as well as distractions from elections over the first half of the year, we perceive the hike could be delayed.
The report explaining on proposed new minimum wage said, “Elsewhere, though the implementation of the proposed new wage bill, from N18,000 to N30,000, seems to be gaining more grounds, our findings suggest a little to no impact on the inflation numbers.
We note that Nigeria’s inflation is largely cost-push (cost driven) and not demand-pull (demand-driven) even as the decline in real income in prior years does suggest the increase will mainly drive a recovery than fuel renewed demand pressures.
For context, inflation moderated over 2011 to an average of 10.9per cent, the year in which the minimum wage was increased to N18,000 form N7,500.
Consequently, we have modeled our inflation outlook using the impact of currency and PMS increase in the latter part of 2019.
“We have adopted a blended approach of our regression and weighted average model to arrive at an average inflation rate of 12.4per cent over 2019 (2018E: 12.2per cent), which forms our base case scenario.”