According to accounting firm KPMG, Nigeria’s inflation is expected to rise further due to the weakness of the naira currency.
In September, inflation stood at 26.72%, which is the highest in two decades, and the October figure is due to be released soon.
The removal of foreign exchange controls and a fuel subsidy by Nigeria’s President Bola Tinubu have triggered soaring inflation.
While both actions have been well received by the markets and credit rating agencies, the naira has fallen by about 40%, leading to a cost of living crisis in Africa’s largest economy as inflation soars.
KPMG predicts that the depreciation of the naira will continue, leading to higher production costs and making it unlikely for headline and food inflation to ease anytime soon.
“Our model suggests that the combined influence of fuel subsidy removal and foreign exchange liberalisation may drive headline inflation to about 30% by December 2023,” it said in a report.
According to a report titled ‘Macroeconomic Review H1 2023 & Outlook for H2 2023’, Nigeria’s GDP growth will be impacted by fuel subsidy and foreign exchange reforms this year.
The report predicts a growth rate of 2.6% in 2023, which is lower than the World Bank’s revised forecast of 2.8% and Nigeria’s achieved growth rate of 3.1% in the previous year.
Additionally, low crude oil output is another factor that will contribute to the constrained growth. The private sector will also be affected as several companies are expected to suffer significant foreign exchange losses in the second half of this year.
The report also stated that consumer demand will decrease and the cost of doing business will increase as foreign exchange controls are lifted and the fuel subsidy is removed.