Following the removal of fuel subsidy in Nigeria, the World Bank has projected that inflation may hit 25 per cent in 2023 against the country’s already existing 22.41 percent inflation rate.
This shows that Nigeria is 2.59 per cent points away from the World Bank projection according to the recent May Consumer Price Index (CPI) report by the National Bureau of Statistics (NBS).
Recall that the World Bank had in January 2022 predicted that Nigeria might have one of the highest inflation rates in the world and the seventh highest in Sub-Saharan Africa.
According to the June 2023 edition of the Nigeria Development Update, the Washington-based bank said that there will be a significant increase in 2023 to 25 per cent as a result of the removal of fuel subsidy.
President Bola Tinubu in May announced the removal of fuel subsidy effective June, this led to an increase in petrol prices across states in the country.
“The price increases resulting from the subsidy removal will have a one-time impact on prices, primarily affecting petrol purchases for transportation, power generation, and certain services.
“Also, headline inflation is expected to rise from 18.8 percent in 2022 to 25 percent in 2023. However, by Q1 of 2024, the subsidy removal will start to have a disinflationary effect, meaning that it will alleviate inflationary pressures despite higher petrol prices.”
According to the World Bank, the country’s consumer price inflation has surged and is currently one of the highest globally, despite the Central Bank of Nigeria (CBN) various measures to control rising inflation, including raising the monetary policy rate by 700 basis points.
The bank said, “The loss of purchasing power from high inflation has increased poverty in the short-term, pushing an estimated 4 million Nigerians into poverty between January and May 2023.”
However, the Bank noted that the removal of the fuel subsidy would reduce the government’s dependence on funding from the Central Bank of Nigeria (CBN) in the long run.