KPMG Forecasts Nigeria’s Headline Inflation to Reach 30% by December 2023 Due to Recent Reforms

KPMG predicts that Nigeria’s headline inflation will escalate to 30% by December 2023, citing recent reforms such as fuel subsidy removal and the unification of the foreign exchange market. The macroeconomic review for the first half of 2023, along with projections for the second half, anticipates the impact of these reforms on inflation. The report also suggests that addressing issues like energy and transportation costs, supply chain challenges, and enhancing local production would be more effective in controlling inflation than raising interest rates.

Key Points:

1. Inflation Projection:
   • KPMG’s forecast indicates that Nigeria’s headline inflation could rise to approximately 30% by December 2023, influenced by recent reforms including fuel subsidy removal and foreign exchange liberalization.
   • As of September, Nigeria’s current headline inflation rate stands at 26.72%, according to the National Bureau of Statistics.
2. Reform Impact on GDP Growth:
   • The report suggests that recent reforms, such as fuel subsidy removal and the unification of the foreign exchange market, may lower Nigeria’s GDP growth.
   • The projected GDP growth for 2023 is 2.6%, a reduction from the World Bank’s forecast of 2.8% and the 3.1% growth achieved in 2022.
3. Effectiveness of MPR Hikes:
   • The report notes that the current Monetary Policy Rate (MPR) hikes implemented by the Central Bank of Nigeria (CBN) in the last 18 months have proven ineffective in curbing the rising inflationary trend.
4. Alternative Measures to Control Inflation:
   • KPMG advises that addressing factors like energy and transportation costs, supply chain issues, and promoting local production would be more effective in controlling inflation than relying solely on interest rate hikes.
5. Macroeconomic Challenges in H1 2023:
   • The report highlights macroeconomic challenges in the first half of 2023, including an unsuccessful naira redesign policy, slow growth due to low crude oil output, elevated inflation, and the impact of fuel subsidy removal and naira devaluation.
6. Economic Growth Projection:
   • The expected GDP growth of 2.6% for 2023 is lower than the World Bank’s revised forecast of 2.8%, and it reflects the challenges and reforms introduced in the first half of the year.
7. Record Inflation and Reforms:
   • Analysts attribute the continuous surge in Nigeria’s inflation over the past nine months, reaching a two-decade high of 26.72% in September, to President Tinubu’s fuel subsidy removal and currency market reforms.

Conclusion:
KPMG’s projection of Nigeria’s headline inflation reaching 30% by December 2023 underscores the potential impact of recent economic reforms. The report’s emphasis on alternative measures to control inflation, beyond interest rate hikes, reflects a nuanced approach to addressing the complex economic challenges facing Nigeria. The expected lower GDP growth for 2023 highlights the importance of carefully managing the consequences of policy reforms to achieve sustainable economic development.

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