Exchange Rate Pass-Through to Consumer Prices in Nigeria

For a developing economy like Nigeria, which is highly dependent on imports of both capital and consumer goods, the length and magnitude of exchange rate pass-through to consumer prices are of interest for price stability and the economic wellbeing of Nigerians. This paper examined the exchange rate pass-through to consumer prices in Nigeria for the period 2000Q1 to 2018Q4. Using vector autoregressive (VAR) model alongside the Pairwise Granger Causality test, the study found a minimal direct exchange rate pass-through to consumer prices of 0.2% while the indirect pass-through to consumer prices through import prices was 0.4%. The influence of consumer price on its own self was 0.2%. The causality test however, found unidirectional causality between consumer price and exchange rate as well as between import price index and exchange rate. Thus, the study concludes that the exchange rate pass-through to consumer prices is incomplete as well as higher and doubles through import prices compared to the pass-through from exchange rate. Thus, the study recommended that price stability could be achieved, if the pattern of exchange rate pass-through is clearly and correctly identified by Central Bank of Nigeria.