Fuel Subsidy: Nigeria’s Inflation to hit 25% — World Bank

The World Bank, based in Washington, has released a report projecting a significant increase in Nigeria’s inflation rate, as reported by PulseNets.

According to the June 2023 edition of the Nigeria Development Update, the World Bank predicts that the inflation rate in Nigeria will reach 25% in the coming months. This surge is attributed to the adverse effects of fuel subsidy removal.

The recent removal of subsidies has led to a sharp increase in the pump price of petrol, soaring from N197 per litre to over 500 per litre in June.

Currently, Nigeria’s inflation figure stands at 21.41% according to the National Bureau of Statistics. However, the World Bank emphasizes that this figure is expected to rise to 25% by 2023.

Despite the alarming projection, the World Bank suggests a potential decrease in headline inflation during the first quarter of 2024. The removal of subsidies is expected to have a disinflationary effect, alleviating inflationary pressures despite the higher petrol prices.

The World Bank explains, “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.”

Also Read: I Rejected Share in Fuel Subsidy Scam — Tinubu

Given these projections, the World Bank urges the Nigerian government to implement macro-fiscal policy measures that promote price stability and provide palliative measures to mitigate the impact of fuel subsidy removal.

“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,” states the report.