The World Bank predicts that Nigeria’s inflation would reach 25% in the next months as a result of the elimination of fuel subsidies.
The Washington-based bank revealed this in its Nigeria Development Update for June 2023.
The World Bank’s forecast comes as petrol prices have risen from N197 per litre to more than 500 per litre since subsidies were removed in June.
Nigeria’s inflation rate is 21.41 percent, according to the National Bureau of Statistics.
The World Bank stated that it will increase to 25% by 2023.
It did, however, forecast that headline inflation will 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 2024, the withdrawal of subsidies will begin to have a disinflationary effect, reducing inflationary pressures despite increased gasoline prices.
“This is because the removal of subsidies creates additional fiscal space and reduces reliance on CBN financing, thereby limiting the growth of the money supply,” the World Bank observed.
As a further step, the bank recommended that the Nigerian government implement macro-fiscal policies that promote price stability and provide palliative measures to mitigate the impact of the elimination of gasoline subsidies.
“It will be critical to adopt macro-fiscal policy settings conducive to price stability to limit the risk of so-called second-round effects, where one-time price increases trigger more generalized inflation, including through wage-price spirals,” it said.