KPMG forecasts that Nigeria’s headline inflation will rise to 30 percent by December 2023, attributing the anticipated increase to recent reforms, such as fuel subsidy removal, and the unification of the foreign exchange market.
The insights were shared in KPMG’s macroeconomic review for the first half of 2023, along with projections for the second half of the year.
“Specifically, our model suggests that the combined influence of fuel subsidy removal and foreign exchange liberalisation may drive headline inflation to about 30 per cent by December 2023.”
As of September, Nigeria’s current headline inflation rate was reported at 26.72 per cent, according to the National Bureau of Statistics.
On how to control inflation, the report explained that the current MPR hike being adopted by the apex bank in the last 18 months has proven ineffective in stalling the increasing inflationary trend.
However, it advised that addressing issues such as energy and transportation costs, supply chain problems, and boosting local production will be more effective than increasing interest rates.
The report also projected that Nigeria’s economy will grow by 2.6 percent in 2023- a considerable reduction from the World Bank’s projection of 2.8 percent in 2023 and that the recent reforms from President Tinubu such as fuel subsidy removal and unification of the FX market will lower GDP growth in the country.
The report reads, “We expect the Nigerian economy to grow by 2.6 percent in 2023, lower than the revised World Bank’s 2023 forecast of 2.8 percent for Nigeria and the 3.1 percent growth rate achieved in 2022.”
The report highlights that 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 along with the devaluation of the naira, are expected to cast negative repercussions in the second half of the year.
Nigeria’s inflation has surged continuously over the past nine months, reaching a two-decade high of 26.72 percent in September.
Analysts connect this record inflation to President Tinubu’s fuel subsidy removal and currency market reforms.