Inflation to persists, Afrinvest says
Analysts at Afrinvest have predicted that the current inflationary pressure in Nigeria’s economy will persist as a result of the combined influence of fuel subsidy removal and foreign exchange liberalization.
Afrinvest West Africa in its October 2023 inflation forecast report, predicted a further 102 bps spike for Nigeria’s headline inflation rate for October, from the 26.72 percent recorded in September to 27.9 per cent in October.
The report noted that recent reforms in the petroleum industry and unification of the foreign exchange market will be responsible for the projected spike in prices of goods and services.
Since the initiation of fuel subsidy removal and reforms in foreign exchange market, transport costs and food prices have nearly doubled as the naira has weakened by almost 60 per cent trading at N780 to the USD in the official window.
The analysts said like other months where food has been the major contributor to the CPI hike, the trend is projected to continue in October due to increased transportation costs for agricultural produce.
However, the report suggests that there was a boost in food supply in October due to the ongoing harvest season.
The report also highlights that the rising price of Petroleum Motor Spirit (PMS) and Diesel (AGO) in October 2023 is a significant contributor to core inflation in the month.
“Fiscal spending must be more tilted towards value-creating capital spending as against consumption-focused recurrent needs.”
According to the report, a short-term solution to fixing food supply issues is to reduce tariffs on food imports, while a long-term solution is to address structural issues such as security, transportation, and logistics.
Similarly, global financial advisory service firm, KPMG in its macroeconomic review for the first half of 2023 and outlook for the year’s second half, stated that headline inflation will reach 30 per cent by December 2023.
It reads, “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 liberalisation may drive headline inflation to about 30 per cent by December 2023.”
The report also 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 per cent in 2023- a considerable reduction from the World Bank’s projection of 2.8 per cent in 2023 and that the recent reforms from President Bola Tinubu such as fuel subsidy removal and unification of the forex market will lower GDP growth in the country.
