Recent changes in Nigeria, like the elimination of fuel subsidies and the unification of the foreign exchange market will cause Nigeria’s headline inflation rate to reach 30% by December 2023, professional services company, KPMG has said.
The observations and forecasts for the second half of 2023 were included in KPMG’s macroeconomic review for the first half of the year.
“We anticipate that the current inflationary pressure in the economy will persist into H2 2023. Headline and food inflation are unlikely to ease soon as the depreciation of the naira continues to reinforce the inflationary impact of fuel subsidy removal via higher input prices and production costs caused by imported inflation,” the report said.
“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.”
Nigeria’s headline inflation rate rose for the 10th straight month to 27.8 percent in October 2023 from 26.72 percent in September, according to analysts at Financial Derivatives Company Limited (FDC), led by economist Bismarck Rewane.
Regarding the management of inflation, the study clarified that the MPR raise implemented by the apex bank during the last 18 months has not been able to stop the rising trend in inflation.
It did, however, advise against raising lending rates in favour of tackling problems with the supply chain, reducing the cost of energy and transportation, and enhancing local production.
In addition, the report predicted that President Tinubu’s recent reforms—such as the elimination of fuel subsidies and the unification of the foreign exchange market—will slow GDP growth in Nigeria, with the country’s GDP expected to grow by 2.6% in 2023, a significant decrease from the World Bank’s forecast of 2.8%.
In contrast to the revised World Bank prediction of 2.8 percent for Nigeria in 2023 and the 3.1 percent growth rate attained in 2022, the report states, “We expect the Nigerian economy to grow by 2.6 percent in 2023.”
According to the report, the first half of the year’s macroeconomic problems—such as the failed naira redesign policy, weak growth brought on by low crude oil output, high inflation, the elimination of fuel subsidies, and the depreciation of the naira—are likely to have a detrimental effect on the second half of the year.
Over the previous nine months, Nigeria’s inflation rate has steadily increased, hitting a two-decade high of 26.72 percent in September.