Daily Insight: New Minimum Wage Regime Amplifies Inflation Risks

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The monthly selected food prices watch released by the National Bureau of Statistics for Sep-18 showed that of the 43 foodstuffs tracked, 21 had trended higher y/y. Yet, a comparison of the prices at the end of 2017 and Sep-18 shows an upward trend on 24 of the 43 foodstuffs tracked even as headline inflation rose 11.3%y/y in the month.

Daily Insight: New Minimum Wage Regime Amplifies Inflation Risks - Brand Spur

Meanwhile, the Nigeria Labor Congress has cornered the government into a 66% minimum wage hike with the argument of a rising cost of living and poverty level. The fiscal sustainability of this new minimum wage regime is questionable in the face of sticky non-oil revenue, gaping budget deficits, ballooning federal and states’ debt pile, crowding-out the much-needed CAPEX. More so, the inability of some states to meet existing wage obligation is disturbing.

While no definite timeline has been set for the takeoff of the new wage regime, to say that the imminent wage hike would go unfelt is an understatement. For inflation, this stokes an upward trend with the cushioning base effect already thinning out, amid tacit pressure on the Naira. The impact of recent flood across some agrarian states on food supplies as we approach the festive season, and election spending, are other factors likely to amplify pressure on the price level.

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