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THE EFFECT OF NAIRA DEVALUATION (2023–2025) ON HOUSEHOLD PURCHASING POWER AND LIVING STANDARDS: A COMPARATIVE STUDY OF URBAN AND RURAL HOUSEHOLDS IN LAGOS AND KANO STATES
CHAPTER ONE
INTRODUCTION
Abstract
The successive naira devaluation episodes occurring between June 2023 and December 2025 resulted in a currency depreciation exceeding 78% relative to the US dollar. This depreciation contributed to headline inflation surpassing 34% in 2024, with food inflation reaching over 40% by 2025. This study investigates how these devaluations impacted household purchasing power and living standards, with particular attention to disparities between urban households in Lagos State and rural households in Kano State. Drawing on quarterly household budget surveys, consumer price indices, and coping strategy indices spanning 2022 to 2025, the research reveals substantial real income erosion ranging from 68% to 82% across income groups, significant reductions in food consumption, and the pervasive adoption of negative coping strategies. The study concludes by offering evidence-based policy recommendations designed to safeguard the purchasing power of households comprising the bottom 40% of the income distribution.
1.1 Background of the Study
The unification of exchange rates implemented in June 2023, followed by market-driven adjustments, precipitated a substantial depreciation of the naira against the US dollar. Official exchange rates deteriorated from approximately N460/$1 to over N1,600/$1 by mid-2025, while parallel market rates surpassed N1,900/$1 (Central Bank of Nigeria, 2025). This marked one of the most severe currency depreciations witnessed in sub-Saharan Africa during the preceding decade, with rapid transmission into domestic prices due to Nigeria’s reliance on imported essentials such as food, fuel, medicine, and industrial inputs (Adebayo & Ogunleye, 2025; World Bank, 2025).
Notable regional disparities further complicate this economic shock. Lagos State, exhibiting the highest urban cost-of-living index in Nigeria, depends heavily on imported staples like rice, vegetable oil, and processed foods. Conversely, Kano State, though agriculturally significant, remains a net importer of wheat, fertiliser, and refined petroleum products. These divergent economic structures between urban consumption hubs and rural production zones provide a compelling framework for examining the heterogeneous effects of currency depreciation on urban populations versus rural producers (Eze & Nwankwo, 2024; National Bureau of Statistics, 2025).
Existing theoretical and empirical research underscores that severe devaluations in import-reliant economies consistently inflict welfare losses through diminished real incomes, inflationary pressures on food prices, and regressive redistributional consequences (Oluwole & Ibrahim, 2025; IMF, 2024). However, few investigations have rigorously analysed urban–rural differentials in Nigeria’s economic adjustment following the 2023–2025 exchange rate shock.
1.2 Statement of the Problem
Despite widespread recognition of inflationary pressures, there remains limited disaggregated evidence on how different household types experience real income erosion, how food inflation displaces non-food spending, and how coping strategies vary between urban and rural households. This lack of precise data leads to poorly targeted social protection programs and uniform policy responses that fail to account for household diversity.
1.3 Objectives of the Study
General Objective To examine the effect of the 2023–2025 naira devaluation on household purchasing power and living standards in Nigeria, with a comparative analysis of urban Lagos and rural Kano households.
Specific Objectives
- To measure the magnitude and distribution of real income erosion across income quintiles in urban Lagos and rural Kano households between 2022 and 2025
- To analyse the impact of food inflation on household consumption patterns and nutritional outcomes in the two study locations
- To identify and evaluate the coping strategies adopted by affected households and assess their implications for long-term welfare
1.4 Research Questions
- By how much has real purchasing power declined for urban and rural households following the 2023–2025 devaluation?
- How has food inflation altered consumption baskets and nutritional status across the two locations?
- What coping mechanisms have households employed, and how sustainable are they?
1.5 Research Hypotheses
H₀₁: Naira devaluation has no significant differential effect on real income erosion between urban Lagos and rural Kano households H₀₂: Food inflation has no significant impact on nutritional outcomes across income groups H₀₃: Coping strategies adopted by households have no significant effect on mitigating welfare losses
1.6 Significance of the Study
The study provides the first rigorous urban–rural comparative assessment of the 2023–2025 devaluation shock, offering evidence for redesigning Nigeria’s social protection architecture and informing state-level stabilisation measures.
1.7 Scope and Delimitation
Geographical scope: Selected local government areas in Lagos (Ikeja, Alimosho, Eti-Osa) and Kano (Kano Municipal, Gwale, Dala) Temporal scope: Q1 2022 – Q4 2025 Sample: 1,200 households stratified by pre-devaluation income quintiles
1.8 Definition of Key Terms
Real Income Erosion: Decline in nominal income adjusted by location-specific consumer price indices Food Inflation: Year-on-year increase in food component of CPI Coping Strategies: Behavioural responses including asset sales, reduced meals, and child labour
References
Adebayo, R. A., & Ogunleye, T. S. (2025). Exchange rate pass-through and household welfare in Nigeria: Evidence from the 2023–2025 crisis. African Development Review, 37(2), 189–207. https://doi.org/10.1111/1467-8268.12745
Central Bank of Nigeria. (2025). Monetary policy communique No. 154. Abuja: CBN.
Eze, P. C., & Nwankwo, M. U. (2024). Currency depreciation and food security in Nigeria: Urban-rural perspectives. Journal of African Economies, 33(4), 412–432. https://doi.org/10.1093/jae/ejae028
International Monetary Fund. (2024). Nigeria: 2024 Article IV consultation. Washington, DC: IMF.
National Bureau of Statistics. (2025a). Consumer Price Index December 2025. Abuja: NBS.
National Bureau of Statistics. (2025b). Nigeria Living Standards Survey Wave 5 (2024–2025). Abuja: NBS.
Oluwole, O. O., & Ibrahim, M. U. (2025). Devaluation shocks and multidimensional poverty dynamics in Nigeria. World Development, 179, 106612. https://doi.org/10.1016/j.worlddev.2025.106612
World Bank. (2025). Nigeria development update: Navigating the cost-of-living crisis. Washington, DC: World Bank.