PwC Nigeria has predicted that the Nigerian economy will witness a continued rise in inflation due to the demand and supply shocks from the impact of the Covid-19 disease.
The firm also predicted that the rising inflationary trend and shocks emanating from the virus would lower households, businesses and government income.
It further estimated that headline inflation would average at 12.2 per cent in 2020, compared to11.4 per cent in 2019, which could likely impact the monetary policy objective of price stability.
The prediction was contained in the July 2020 edition of PwC Nigeria’s Economic bulletin that was signed by the West Africa Financial Services Leader and Chief Economist, Dr. Andrew Nevin.
It estimated that the base effect and waning disposal income would push prices on both sides.
“Barring a second wave of the pandemic, which could further threaten outlook for global economic growth coupled with the absence of major shocks to food supply in Nigeria, inflation outlook for the rest of the year could be influenced by two factors, the elevated base effect and the waning household income. The base effect factor is likely to have a greater impact,” the report stated.
“In May 2020,” said the PwC, “food inflation rose marginally to 15 per cent year on year. This does not imply food price tapered in the month under review but the persistent increase in food prices has raised the base factor.
“Non-food inflation raise to 10.1 per cent year on year from 9.98. This is because demand for non-food items was mostly subdued as the impact of the lockdown affected most non-essential goods and services.
“For instance, restaurant and hotel inflation feel from 0.9 percent in April to 0.8 in May. Alcoholic beverages and tobacco also dipped from 0.86 per cent to 0.86 per cent while the education, clothing and footwear inflation indices were largely flat.”
The bulletin observed that on a month-by-month basis, the headline inflation rose the farthest since July 2018 by 1.2 in May 2020, due to significant disruption to domestic and global supply chain on account of the lockdown measures brought on by mitigating the pandemic’s spread.
The PwC stated that Nigerian households would experience a lowered real income, private savings and investments due to high cost of living with a telling consequence of “greater risk of poverty.”
Similarly, the report predicted that businesses would witness lower sales especially for non-essential goods, low income formation, high cost of inputs and contracting profits margin or deeper losses.
In the same vein, the government would be faced with a risk to budget implementation due to high and uncertain input cost as well as low tax revenue generation especially from Company Income Tax and VAT.
The report noted that the country’s external trade position would be marked by less competitive domestic products, widened trade deficit and waning foreign investors’ confidence on the Nigerian economy.
The report recommended specific strategic approaches that would put a lid on consistent upward-flexible commodity prices.
“We recommend the following to curtail the persistent rise in prices. One, deliberate effort to provide adequate support to the agricultural and food processing sectors. Two, ensure a functional and effective price regulatory system.
“Three, provide adequate supply-chain mechanism to facilitate unrestricted supply of food and other essential items. Four, provide massive support to the real sector of the economy, ranging from adequate funding to inclusive tax incentives. Finally, ensure that monetary and fiscal policies will foster stability on the supply side of the market.”
Leave a reply