Leading audit and advisory firm KPMG has released a macroeconomic review for the first half of 2023, forecasting that Nigeria headline inflation is poised to escalate to 30 percent by December. The anticipated surge is attributed to recent economic reforms, including the removal of fuel subsidies and the unification of the foreign exchange market. According to KPMG, “Specifically, our model suggests that the combined influence of fuel subsidy removal and foreign exchange liberalization may drive headline inflation to about 30 percent by December 2023.”
In September 2023, headline inflation rose to 26.72 percent — up from 25.80 percent in the previous month. The figure marked the ninth consecutive rise in the country’s inflation rate this year. In its November report on November 10, 2023, which was titled “Macroeconomics Review H1 2023 & Outlook for H2 2023,” the multinational firm projected that the trend will continue till December 2023. The report reviews key issues shaping the global economy in the first half of 2023 in addition to providing a snapshot of notable regional issues confronting Africa in the same period with a view to understanding Nigeria external environment.
Economy to grow by a margin lower than World Bank’s forecast.
According to the report, 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. Meanwhile, the professional services firm said it expects the Nigerian economy to grow by 2.6 percent in 2023 — lower than both the revised World Bank’s 2023 forecast of 2.8 percent and the 3.1 percent growth rate achieved in 2022.
Additional to the effect of the naira redesign policy, according to KPMG, is the fact that the weak growth for 2023 will be driven by low crude oil output, high inflation which weakens consumer demand, and weak growth of the private sector as several corporate organisations continue to declare huge foreign exchange losses in the first half of 2023. The firm said other factors are foreign exchange and subsidy reforms which are further expected to weaken consumer demand and raise the cost of doing business even for the rest of the year.
Factors that contributed to inflation in the country.
The report addresses the challenges of inflation control, emphasizing that the current Monetary Policy Rate (MPR) hikes by the central bank have been ineffective. KPMG recommends a focus on resolving issues such as energy and transportation costs, supply chain challenges, and promoting local production as more effective measures than further interest rate increases. The report suggests that recent reforms by President Tinubu, such as fuel subsidy removal and FX market unification, may contribute to lowering the country’s GDP growth.
It concludes that challenges faced in the first half of the year, including an unsuccessful naira redesign policy, sluggish growth due to low crude oil output, elevated inflation, and economic reforms, are expected to have adverse effects in the latter half of the year. Nigeria persistent inflation over the past nine months is linked to President Tinubu’s fuel subsidy removal and currency market reforms. At the advent of the subsidy removal, the price of petrol (premium motor spirit) tripled in price, creating a corresponding rise in the price of other commodities.
Concerns over CBN-adopted measures to tackle inflation.
Significantly, the report highlighted that concerns have been raised in some quarters over the consistency of the measures adopted by the CBN to tackle inflation as it remained untamed in addition to the regulatory body matching its rate hikes with higher money supply. For example, the supply of broad money rose by 9.73 percent in Q2 2023. Yet, under assumptions of monetary independence, the CBN is expected to maintain its current hawkish posture by raising the monetary policy rate (MPR) for monetary tightening.
KPMG Nigeria: Website