The World Bank has projected that Nigeria’s inflation would hit 25% in the coming months due to the adverse effect of fuel subsidy removal.
The Washington-based bank disclosed this in its June 2023 edition of the Nigeria Development Update. This projection comes amid the hike in the pump price of petrol from N197 per litre to over 500 per litre after subsidy removal in June.
According to the National Bureau of Statistics, Nigeria’s inflation figure is 21.41%.
In its June 2023 edition of the Nigeria Development Update, the Bretton Wood institution said inflation would be driven by a hike in prices of commodities in response to the increase in fuel prices.
The removal of fuel subsidy by the Federal Government in June led to an increase in petrol prices from N189 to above N500 per litre across states in the country.
This pushed up the prices of goods, but the World Bank said this was temporary as the sharp impact of subsidy removal on prices would cool off in the first quarter of 2024.
However, it projected that the headline inflation would fall in the first quarter of 2024.
“Headline inflation is expected to rise from 18.8% in 2022 to 25% in 2023. However, by Q1 of 2024, the subsidy removal will start to have a disinflationary effect, alleviating inflationary pressures despite higher petrol prices.
“This is because the subsidy removal creates additional fiscal space and reduces reliance on financing from the CBN, curbing the growth of the money supply”, World Bank stated.
“To limit the risk of so-called second-round effects, where one-off price increases trigger more generalized inflation including through wage-price spirals, it will be important to adopt macro-fiscal policy settings conducive to price stability,” it stated.
As a way forward, the bank urged that the Nigerian government should adopt macro-fiscal policy settings conducive to price stability and provision of palliative to cushion the effect of fuel subsidy removal.