Nigeria’s inflation remains high, unchanged across all categories in February, says KPMG

Nigeria’s inflation trend remained high and largely unchanged across all sectors in February 2023, says a new report from the KPMG.

The KPMG said the crisis necessitated by the redesigning of naira notes policy of the Central Bank of Nigeria (CBN) had not slowed down inflation in the country as it was anticipated.

The global network of professional firms of tax and auditor administrators said in its analysis that Nigeria’s inflation was caused by a complex mix of demand pull and cost push factors.

According to the document, signed by Dr Yemi Kale, Partner/Chief Economist at KPMG and former Statistician General at the National Bureau of Statistics (NBS), “following the CBN’s currency redesigning policy, currency in circulation dropped from N3.28 trillion in December 2022 to N1.38 trillion in January 2023 and estimated N982.09 billion in February, representing 235 percent decline.

The document said that it was expected that scarcity of redesigned notes, which caused a cash crunch in the economy since January 2023, would stimulate a slow down in demand pull inflation, especially, given the series of interest rate hikes from the CBN (500 basis points since May 2022).

According to the economy advisory body, this had not happened yet as inflation had continued to bite hard on Nigerians.

Going further, the body said currency in circulation declined progressively since September 2022.

“For instance, the currency in circulation as of September 2022 stood at N3.350 trillion. In October, the same year, it stood at N3.250 trillion, while November and December, it stood at N3.250 and N3.288 (trillion) respectively.

“By January 2023, it fell further to N1.386trillion and in February went down to N980 billion.”

It said that the progressive downward trend of currency in circulation might indicate a drop in output below effective demand.

“This is despite the cash crunch with some producers of goods and services whose activities are cash based facing challenges purchasing inputs for production or replacing their stock and distributing them acrosss the country.”

KPMG further noted that the continuing rise in inflation rate also suggestedz that persisting cost push factors remained clear and presented determinants of the direction of inflation.

“This includes structural issues, which impact domestic food production and transportation, such as insecurity, floods in key agricultural producing areas, exchange rate challenges and rising international food and energy prices occasioned by the Russian-Ukraine crisis.”

It said suggested policy measures targeted at controlling spending might not be the most preferable strategies for controlling the current inflation trends.

The body estimated that about 30 – 40 percent of largely informal sector economic activity before the cash redesign policy was cash based and “while we expect some of these would have switched to electronic transaction, we do not believe enough time has elapsed for it to have been fully and effectively substituted.

“Additionally, the expected fuel subsidy removal advocated by both the current and the incoming administration, if it does materialise, and the 2022 Fiscal Bill to be introduced in 2023 are also expected to keep pressure on domestic prices in 2023.

“Further, we expect the decision of the CBN to recirculate the old naira notes would help delay the full switch to electronic transactions but to have a minimal input on cash availability constraints, given the CBN has indicated that a large portion of the old notes have already been destroyed.”