The gradual improvement in the availability of cash, boost in electronic transactions, along with the CBN tightening stance has not yet eased pressure caused by inflation especially on food, energy, transport, and distribution prices, KPMG has said.
The professional services firm in its recent macroeconomic outlook released on Wednesday said both volume and value of mobile banking transactions more than doubled between the periods before and after the naira design policy, just as the number of payment companies, digital banks and POS terminals deployed grew to record highs by the end of March.
The reported Consumer Price Index (CPI) for March 2023 which showed consumer prices both on a month-on-month and year-on-year basis remained high and rising.
On a year-on-year basis, the headline CPI rose to 22.04 percent in March 2023 compared to 21.91 percent in February 2023.
On a monthly basis, the CPI which had slowed substantially from 1.87 percent in January to 1.71 percent in February, surged again to 1.86 percent in March 2023.
“Rising energy, fuel, transport, and related costs were largely responsible for the surge in core inflation in March 2023,” KPMG said.
“The reversal of inflation in March reinforces our view that the determinants of inflation in Nigeria are largely cost push factors which are out of control of monetary authorities.
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“Consequently, further tightening at this point has more of an impact on squeezing economic growth, constraining non-oil export growth, slowing employment creation and consumer demand and worsening poverty, rather than slowing down inflation,” KPMG added.
KPMG said following the CBN’s policy reversal to allow old naira notes to continue alongside the new notes, the currency in circulation which had dropped from N3.28 trillion in December 2022 to N982 billion in February 2023 has risen thereby improving the cost of cash.
“This also stimulates economic activity by boosting available cash to purchase inputs, increasing supply, and stimulating demand.
“At the same time, many economic transactions gradually shifted to electronic payment channels despite initial challenges due to the sudden substantial pressure the platform and systems had to face with the surge in transactions,” it said.
KPMG said the depreciation of the naira against the dollar during the month in question has also put pressure on domestic prices despite a generally slowdown in international commodity and energy prices.
“At this point, a strategy to cut production costs and boost supply and control conditions stifling distribution and responsible for high and rising energy and transportation costs might be more effective in controlling consumer inflation.”
