World Bank sees Nigeria’s inflation hitting 25% on subsidy removal

The World Bank has said the inflation rate in Nigeria is expected to peak at 25 percent this year on the back of the elimination of petrol subsidy.

The multilateral lender said in a new report on Tuesday that the price increases resulting from the subsidy removal would have a one-time impact on prices, primarily affecting petrol purchases for transportation, power generation, and certain services.

“The removal of the petrol subsidy is anticipated to cause a temporary increase in inflation in the upcoming months before contributing to disinflation in the medium term,” it said in its Nigeria Development Update report. “Headline inflation is expected to rise from 18.8 percent in 2022 to 25 percent in 2023.”

The World Bank, however, said that by the first quarter of 2024, the subsidy removal would start to have a disinflationary effect, meaning that it would alleviate 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 growth of the money supply,” it said.

To limit the risk of so-called second-round effects, where one-off price increases trigger more generalised inflation including through wage-price spirals, it will be important to adopt macro-fiscal policy settings that are conducive to price stability, according to the report.

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