A new report by KPMG Nigeria has revealed the change in the design of the Nigerian naira notes has no impact on curtailing the rising prices of goods and services across Africa’s biggest economy.
In a flashnote by KPMG in Nigeria, published in March, 21, 2023, the accounting firm said following the Central Bank of Nigeria(CBN) currency redesign policy, currency in circulation has dropped from N3.28 trillion in December 2022 to N1.38 trillion in January and estimated N982.09 billion in February 2023, representing a 235 percent decline.
“It was expected that the scarcity of redesigned notes, which caused a cash crunch in the economy in January 2023, would stimulate a slowdown in demand-pull inflation, especially given the series of interest rate hikes from the Central Bank (500 basis points since May 2022). This has, however, not happened yet,” KPMG Nigeria said.
Nigeria’s current inflation rate is at 21.91 percent, a new 17-year high from 21.82 percent in January 2023.
The consulting firm said “Nigeria’s annual inflation rate remained high and largely unchanged across all categories in February 2023. The cash crunch which has affected consumer expenditure following the earlier redesign of the naira, doesn’t seem to have slowed down inflation yet, despite a 500-basis interest rate hike since May 2022 and a 235 percent decline in cash in circulation.”
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“This might indicate a drop in output below effective demand, despite the cash crunch, with some producers of goods and services whose activities are cash based facing challenges purchasing inputs for production or replacing their stock and distributing them across the country.
“The continuing rise in inflation rate may also suggest that persisting cost push factors remain clear and present determinants of the direction of inflation,” KPMG Nigeria said.
KPMG Nigeria said Nigeria’s inflation is caused by a complex mix of demand pull and cost push factors.
“The Central Bank of Nigeria is likely to maintain its hawkish stance on rates when the MPC meets 20-21 March, while it waits to assess Q1 2023 GDP results,” It said.
KPMG Nigeria said: “The National Bureau of Statistics has published its Consumer Price Index (CPI) report for February 2023. The CPI, a closely watched gauge of inflation, showed that annual price changes remained high and rising in February.
“The headline CPI for February measured 21.89 percent (a new two decade high) compared to 21.82 percent in January. On a monthly basis, however, prices slowed by 1.71 percent compared to the January monthly rate of 1.81 percent.
“Food prices, which dominate the CPI basket, were the largest contributor to the increase in inflation with food inflation rising to 24.35 percent compared to 24.32 percent in January. While monthly, food prices rose slower at 1.90 percent compared to 2.08 percent,” It said.
KPMG Nigeria said when stripping out volatile energy and food prices, core CPI slowed both on an annual and monthly basis by 18.84 percent (from 19.16% in January) and 1.06 percent (from 1.82%) respectively.