Fuel Subsidy Removal and FX Unification to Drive Inflation to 30%, Says KPMG Report

KPMG, a global financial advisory service firm, has forecasted that Nigeria’s headline inflation will surge to 30% by December 2023.

The country’s current headline inflation rate stands at 26.72% as of September 2023.

KPMG attributes this projected spike in prices to recent reforms in the petroleum industry, including the removal of fuel subsidies and the unification of the foreign exchange market.

In its macroeconomic review for the first half of 2023 and outlook for the second half, KPMG anticipates persistent inflationary pressure in the economy.

The firm suggests that the combined impact of fuel subsidy removal and foreign exchange liberalization could drive headline inflation to around 30% by the end of the year.

Addressing the ineffectiveness of the Monetary Policy Rate (MPR) hike in curbing inflation, the report recommends tackling issues such as energy and transportation costs, supply chain problems, and boosting local production as more effective measures.

Additionally, KPMG projects a 2.6% growth in Nigeria’s economy for 2023, which is lower than the World Bank’s projection of 2.8%.

The report attributes this reduced growth forecast to recent reforms by President Tinubu, such as fuel subsidy removal and the unification of the foreign exchange market.

The first half of the year saw macroeconomic challenges, including a failed naira redesign policy, weak growth due to low crude oil output, high inflation, and the impact of fuel subsidy removal and naira devaluation.

KPMG expects these issues to have negative ripple effects in the second half of the year.

Nigeria has experienced a consistent increase in inflation over the past nine months, reaching a two-decade high of 26.72% in September.

Analysts attribute the record inflation levels to fuel subsidy removal and currency market reforms initiated by President Tinubu.

The weakening of the naira, nearly doubling transport costs and food prices, has contributed to this inflationary trend.

Source: Nairametrics