KPMG Nigeria Warns of Potential Inflation Surge Following Fuel Subsidy Removal

KPMG Nigeria has raised concerns over the removal of fuel subsidies in the country, stating that it could lead to a significant increase in the inflation rate, with estimates reaching as high as 30 percent in June 2023.

According to a report by KPMG, the removal of fuel subsidies, whether implemented fully or partially, is expected to trigger a temporary surge in inflation. The National Bureau of Statistics (NBS) acknowledged the impact of the fuel subsidy removal and the unification of exchange rates, stating that it had yet to be fully reflected in the country’s headline inflation. This justifies the marginal increase observed.

The NBS clarified on its Twitter page that the Consumer Price Index (CPI) numbers for June might not entirely capture the effects of the fuel subsidy removal and exchange rate unification. Data collection for computing the rate usually ceases around the middle of the month, meaning that the June figures only account for approximately two weeks of the policy’s impact on consumer prices.

It is important to note that the full effect of the policy, particularly its influence on prices, will not be fully evident in June alone. The subsequent months will provide a more accurate reflection based on actual prices collected from various market outlets across the country.

The anticipated inflation surge has raised concerns about its potential consequences. KPMG Nigeria emphasizes that the removal of fuel subsidies could have ripple effects on households, causing them to reduce their expenditures. Consequently, businesses may experience a decrease in demand while contending with rising operational costs. This situation could disproportionately affect Micro, Small, and Medium-sized Enterprises (MSMEs) and potentially lead to layoffs, thereby exacerbating the unemployment rate and insecurities in the country.

As Nigeria navigates through these changes, policymakers and stakeholders will need to carefully monitor the economic landscape and implement measures to mitigate the potential adverse effects on inflation and the overall well-being of the nation.