KPMG, a global financial advisory service firm, has predicted that Nigeria’s headline inflation will reach 30% by December 2023, up from 26.72% in September. The firm attributed the expected rise in prices of goods and services to the recent reforms in the petroleum industry and the foreign exchange market.
In its macroeconomic review for the first half of 2023 and outlook for the second half, KPMG said that the removal of fuel subsidy and the liberalisation of the foreign exchange market would have a significant impact on inflation.
“We anticipate that the current inflationary pressure in the economy will persist into H2 2023… Specifically, our model suggests that the combined influence of fuel subsidy removal and foreign exchange liberalisation may drive headline inflation to about 30% by December 2023,” the report stated.
The report also suggested that the current monetary policy stance of the Central Bank of Nigeria (CBN), which has raised the benchmark interest rate (MPR) several times in the last 18 months, has been ineffective in curbing inflation. It recommended that the CBN should focus on addressing other factors that contribute to inflation, such as energy and transportation costs, supply chain disruptions, and low local production.
Furthermore, the report projected that Nigeria’s economy would grow by 2.6% in 2023, lower than the World Bank’s estimate of 2.8%. It said that the recent reforms initiated by President Tinubu, such as fuel subsidy removal and foreign exchange unification, would have a negative effect on economic growth.
The report also highlighted the challenges that the Nigerian economy faced in the first half of the year, such as the failed naira redesign policy, weak oil output, high inflation, and currency devaluation. It warned that these issues would have adverse consequences for the economy in the second half of the year.
