Effect of Naira Devaluation on Consumer Purchasing Power in Nigeria (1990-2025) (Published)
This study evaluates the impact of Naira devaluation on consumer purchasing power in Nigeria between 1990 and 2025, a timeframe marked by substantial currency instability and economic turbulence. The research scrutinizes the influence of exchange rate volatility, alongside inflation and interest rates, on citizens’ real income, offering clarity on how currency depreciation diminishes household welfare. Through an exploration of these interactions, the study seeks to enhance understanding of the vital connection between exchange rate management and social well-being within an import-reliant economy. Utilizing secondary time-series data covering 36 years, the study applied econometric methods, specifically the Ordinary Least Squares (OLS) regression on log-transformed and differenced data with Newey-West HAC standard errors, to assess the variables’ relationships. The Augmented Dickey-Fuller test confirmed that all four variables are integrated of order one, I(1). The results demonstrate a significant negative correlation between Naira devaluation and consumer purchasing power (R² = 0.8056, F = 42.76), affirming that persistent currency depreciation is a major catalyst for the decline in real income across Nigeria. Empirical evidence specifically suggests that a 1% rise in devaluation results in roughly a 0.90% drop in purchasing power (coefficient = −0.897, p = 0.0000), supporting the premise that exchange rate instability directly imposes price shocks on consumers. In the short term, inflation and interest rates exhibited statistically insignificant independent effects relative to the impact of currency depreciation, emphasizing the exchange rate’s prevailing influence on cost-of-living challenges. The study concludes that Naira devaluation severely undermines consumer welfare by escalating the cost of basic goods and services, thus exacerbating poverty. Therefore, it is imperative for policymakers to prioritize exchange rate stabilization measures and vigorously pursue economic diversification to lessen reliance on imports. These findings highlight the critical necessity for structural reforms aimed at fortifying the Naira and safeguarding the disposable income of the average Nigerian.
Keywords: Exchange Rate Volatility, consumer purchasing power, currency instability, economic turbulence, naira devaluation