Study of the Effect of Exchange Rate Fluctuations on Import Prices in Nigeria (2015-2023)

Exchange rate fluctuations directly transmit to import prices and indirectly affect domestic inflation, and analysing this pass-through mechanism provides evidence for understanding the real economy effects of Nigeria's exchange rate policies. This study analysed the effect of naira exchange rate fluctuations on import prices in Nigeria between 2015 and 2023. Monthly time series data on the naira-dollar exchange rate, import price index, and domestic consumer price index were obtained from the Central Bank of Nigeria statistical database. An Autoregressive Distributed Lag (ARDL) model was estimated to examine both short-run and long-run pass-through effects. Results showed significant exchange rate pass-through to import prices in both the short and long run. A one percent depreciation of the naira was associated with a 0.68 percent increase in import prices in the short run and a 0.91 percent increase in the long run. The degree of pass-through was significantly higher for manufactured goods imports than for primary commodities. Policy devaluation episodes in 2015-2016 and 2023 showed the most pronounced pass-through effects. The study concludes that Nigeria exhibits near-complete exchange rate pass-through to import prices in the long run, with significant inflationary implications. Recommendations include strengthening domestic production capacity to reduce import dependence, building strategic foreign exchange reserves, and adopting a more gradual exchange rate adjustment policy to minimise inflationary shocks.

Keywords: exchange rate pass-through, import prices, ARDL model, naira, inflation