KPMG, a global financial advisory service firm, has projected that Nigeria’s headline inflation rate will reach 30% by December 2023. Currently, Nigeria’s headline inflation rate for September stands at 26.72%. According to KPMG’s macroeconomic review for the first half of 2023 and its outlook for the second half (H2), recent reforms in the petroleum industry, such as the removal of fuel subsidies, and the unification of the foreign exchange market are expected to contribute to the anticipated increase in the prices of goods and services.
The report states, “We anticipate that the current inflationary pressure in the economy will persist into H2 2023… Specifically, our model suggests that the combined influence of fuel subsidy removal and foreign exchange liberalization may drive headline inflation to about 30% by December 2023.”
MPR Hike Ineffective in Curbing Inflation
Regarding efforts to control inflation, the report argues that the recent Monetary Policy Rate (MPR) hikes by the central bank over the past 18 months have proven ineffective in curbing the rising inflationary trend. Instead, the report suggests that addressing issues such as energy and transportation costs, supply chain challenges, and boosting local production would be more effective than increasing interest rates.
Fuel Subsidy Removal and FX Unification to Impact GDP Growth
The report also forecasts that Nigeria’s economy will grow by 2.6% in 2023, a notable reduction from the World Bank’s projection of 2.8% for the same period. It attributes the lower GDP growth to recent reforms, including fuel subsidy removal and the unification of the foreign exchange market, initiated by President Tinubu.
The report notes, “We expect the Nigerian economy to grow by 2.6% in 2023, lower than the revised World Bank’s 2023 forecast of 2.8% for Nigeria and the 3.1% growth rate achieved in 2022.” It further explains that the macroeconomic challenges faced in the first half of the year, such as the unsuccessful naira redesign policy, weak growth due to low crude oil output, high inflation, and the removal of fuel subsidies and devaluation of the naira, will have negative repercussions in the second half of the year.
Nigeria’s inflation rate has steadily increased for the past nine months, reaching a two-decade high of 26.72% in September. Analysts attribute these record inflation levels to the removal of fuel subsidies and reforms in the currency markets initiated by President Tinubu. Since the implementation of these policies, transport costs and food prices have nearly doubled, and the naira has weakened by almost 60%, trading at N780 to the USD in the official window. Food inflation has risen to 30% according to the National Bureau of Statistics (NBS), reflecting the country’s dependence on food imports to meet national demand.
