The World Bank has forecast that as a result of the removal of subsidy on petrol, inflation in Nigeria may climb to 25 percent in 2023.
The forecast was contained in the Nigeria Development Update June 2023 edition.
The World Bank reportedly noted in the development update, that the striking increase in 2023 notwithstanding, headline inflation would fall by the first quarter of 2024.
“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 it will alleviate inflationary pressures despite higher petrol prices.
“This is because subsidy removal creates additional fiscal space and reduces reliance on financing from the Central Bank of Nigeria (CBN), curbing growth of the money supply. 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.
“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. The price increases resulting from the subsidy removal will have a one-time impact on prices, primarily affecting petroleum purchases for transportation, power generation and certain services,” the report read.
According to the World Bank, consumer price inflation has risen, and now making it one of the highest across the world, which it noted is connected with Nigeria’s fiscal imbalance and a pointer to the urgency of reform efforts.
It will be recalled that the National Bureau of Statistics (NBS) lately made public that inflation in the country jumped to 22.41 percent in May 2023, the highest in about 19 years.
The World Bank noted that though Nigeria’s apex bank had implemented measures to regulate spiralling inflation including raising the monetary policy rate by 700 basis points, these were not ineffective and monetary policy remained loose overall in the first half of the year.
“The loss of purchasing power from high inflation has increased poverty in the short-term, pushing an estimated four million Nigerians into poverty betweenJanuary and May 2023,” the World Bank said.
The bank also cautioned that about 7.1 million Nigerians would become poorer, arising from fuel subsidy removal, if concerted efforts were not made by the Federal Government to either compensate or provide palliatives for the people.