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PwC forecasts higher inflation and FX market volatility in Nigeria for Aug

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In its latest report titled ‘Nigeria Economic Outlook,’ PricewaterhouseCoopers (PwC) projects an increase in inflation and continued volatility in the foreign exchange (FX) market throughout the month of August.

The professional services firm anticipates that the removal of petrol subsidies and the adoption of a managed float exchange rate system will add additional pressure to inflation.

PwC highlights the prospects of a new ministerial cabinet that will steer economic direction and fiscal policy management. The report also mentions the implementation of new tax reforms to drive revenue generation.

However, it warns that inflation is expected to rise in the short to medium term, leading to increased pressure on consumers as higher prices may cause a slowdown in demand. The firm does not anticipate simultaneous and proportionate adjustments to wage levels.

Additionally, PwC predicts that there won’t be further cuts in the Monetary Policy Rate (MPR). The adoption of a managed float exchange rate system is foreseen to result in increased volatility in the FX market.

Furthermore, there is a possibility of an uptick in crude oil production due to potential improvements in security arrangements in oil-producing regions.

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The report cautions that the elevated inflation rate, particularly in food (25.3 percent) and core inflation (20.3 percent), as well as a significant fuel price increase (140 percent after subsidy removal), may negatively impact consumer spending.

Consequently, business revenues could face a decline in the short-term, mainly influenced by direct impacts on input costs and reduced disposable incomes.

PwC emphasizes that continued inflationary growth and rising living costs might slow down real economic growth in the medium term. However, the firm suggests that economic reforms, such as FX market liberalization, could attract foreign investments and boost capital inflows in the long run.

In the immediate future, investors are likely to adopt a cautious approach, waiting to see the effects of further reforms that strengthen business and economic fundamentals.

The report highlights that the floating naira is expected to drive up the cost of imported raw materials. Since the policy’s implementation, the naira’s value has fluctuated between N472/$ and N771/$, compared to an average of N463/$ in May before the policy announcement.

Despite the potential negative impact, the fluctuating naira could serve as an incentive for corporations to explore local sourcing or engage in backward integration in the medium term.

(Edited by Oludare Mayowa; omayowa@globalfinancialdigest.com; Newsroom: +234 8033 964 138)

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