KPMG has projected that Nigeria’s headline inflation could reach 30 percent by December 2023, attributing this anticipated increase to recent reforms, including fuel subsidy removal and the unification of the foreign exchange market. The insights were part of KPMG’s macroeconomic review for the first half of 2023, with projections for the remainder of the year.
Key Points:
- Inflation Forecast: KPMG’s model suggests that the combined impact of fuel subsidy removal and foreign exchange liberalization may drive headline inflation to around 30 percent by December 2023. Nigeria’s current headline inflation rate was reported at 26.72 percent as of September.
- Reform Impact: Recent reforms, particularly those initiated by President Tinubu, such as fuel subsidy removal and unification of the FX market, are identified as key factors contributing to the surge in inflation. These reforms are part of broader economic changes aimed at addressing structural issues.
- Ineffective Monetary Policy Rate (MPR) Hikes: The report notes that the recent MPR hikes by the Central Bank of Nigeria (CBN) over the past 18 months have been ineffective in curbing the rising inflationary trend. It suggests that addressing issues such as energy and transportation costs, supply chain problems, and boosting local production might be more effective than increasing interest rates.
- Economic Growth Projection: KPMG’s projection for Nigeria’s economic growth in 2023 is 2.6 percent, lower than the World Bank’s forecast of 2.8 percent. The report attributes this lower growth rate to recent reforms, including fuel subsidy removal and FX market unification, which may impact GDP growth negatively.
- Macroeconomic Challenges: The first-half macroeconomic challenges, including the unsuccessful naira redesign policy, sluggish growth due to low crude oil output, elevated inflation, and the fuel subsidy removal, are expected to have negative repercussions in the second half of the year.
Conclusion: KPMG’s forecast signals a challenging economic environment for Nigeria, with inflationary pressures expected to persist. The report emphasizes the need for comprehensive measures beyond monetary policy adjustments to address the root causes of inflation and stimulate sustainable economic growth.
