The Impact of Exchange Rates on

Inflation: A Case Study of Nigeria

Student Name: Shareefa

Agenda
• The Impact of Exchange Rates on
Inflation: A Case Study of Nigeria
• Introduction
• Research Objective
• Literature Review
• Exchange Rate Effect on Inflation
• Exchange Rate's Relation to Domestic
Prices
• Flexible or Fixed Exchange Rate
• Nigeria Economic Overview
• Case Study: The Impact of Exchange
Rates on Inflation in Nigeria
• Conclusion
The Impact of Exchange Rates on Inflation:
A Case Study of Nigeria
Key Sections

● Exchange rates and inflation in

developing countries

● Significance of studying the

relationship between exchange
rates and inflation

● Focus on Nigeria as a case study

Introduction
Inflation: Persistent increase in the overall price level of goods and
services over time.
Exchange Rate: The value of a country's currency when compared to
a foreign currency.
Exploring the relationship between exchange rates
and inflation in developing countries, with a focus on
Nigeria
Understanding the significance of studying the
impact of exchange rates on inflation

Setting the context for the case study on Nigeria's

exchange rates and inflation
Research Objective Objective

● To examine the impact of exchange rates on

inflation in Nigeria. It is essential to
understand the specific objective of the
research and its relevance to the Nigerian
context.
Literature Review

Theoretical and empirical studies on the The monetary model of exchange rate
relationship between exchange rates determination
and inflation

Mixed evidence and the need for Comparative literature review with
further research other developing countries
Relationship Between Exchange Rate and Inflation

• Theoretical • Exchange rate • Understanding this

framework: fluctuations can relationship is
Monetary model of influence inflation crucial for
exchange rates. rates. policymakers.
Exchange Rate Effect on Inflation
Influence on The exchange rate's impact on the CPI due to
Consumer Price changes in the prices of imported goods and
Index services.

Changes in Net How fluctuations in the exchange rate affect the

Exports country's net exports and in turn, its inflation rate.

Nominal Wages How the exchange rate impacts nominal wages and
Impact in turn, the overall inflation rate.
Exchange Rate's Relation to Domestic Prices
Previous Research
● Findings from the IMF Working
Paper on Mozambique
● Impact of exchange rate changes
on prices in countries relying on
imports
● Example of the Mozambican
Metical and its relationship with
the US Dollar and South Africa's
Rand
Factors Affecting Domestic Prices
● Changes in exchange rates affect
prices of imported goods and
services
● Exchange rate fluctuations impact
the cost of goods for net
importers
● Increase in exchange rates leads
to higher prices for imported
goods
Flexible or Fixed Exchange Rate
Price Stability Channels of Impact
The role of exchange Highlighting the three
rates in maintaining price main channels through
stability, as discussed in which exchange rates can
the literature on affect inflation: indirect via
macroeconomic policy. changes in net exports,
direct impact on consumer
price index, and influence
on nominal wages.
Policy Considerations
Discuss the
considerations for
policymakers in choosing
between flexible and
fixed exchange rates,
taking into account the
impact on inflation and
economic stability.
Empirical Evidence

• Research studies
• For example, when
show a positive
the exchange rate
relationship between depreciates,
exchange rates and imported goods
inflation (Source: become more
Central Bank of expensive, leading
Nigeria, 2021). to higher inflation.
Nigeria Economic Overview

• Nigeria's average inflation rate from 2000-2020 was

12.6% (Source: World Bank, 2021).
Key Statistics • In 2020, Nigeria experienced an inflation rate of
13.22%, the highest in four years (Source: World Bank,
2021).
• Various factors such as food insecurity, currency
devaluation, and supply chain disruptions contribute to
rising inflation concerns in Nigeria (Source: Central
Bank of Nigeria, 2021).

Workforce and Focus on key industries and

Industries
workforce composition
Impact of Exchange Rates on Inflation in Nigeria Key Findings

• Exchange rate fluctuations

significantly affect Nigeria's
inflation rate.

• During periods of exchange rate

depreciation, Nigeria experiences
higher inflation, particularly in
essential imported goods.

• The impact of exchange rate

changes on inflation is a
combination of both external and
Inlation rate in Nigeria 2022
internal factors.
Conclusion

Importance of understanding the Implications for policymakers and

impact of exchange rates on central banks
inflation

Need for further research to fully Summary of the key takeaways or

comprehend the relationship action points