Onome Amuge
Nigeria’s headline inflation rate slowed for the fourth consecutive month in July 2025, settling at 21.88 per cent, in what is considered a slight relief for a nation facing persistent price pressures. Consequently, the 0.34 percentage point decline from June’s 22.22 per cent has boosted expectations that the Central Bank of Nigeria (CBN) may soon rotate from its aggressive monetary tightening stance, which has kept borrowing costs at a record high.
The CBN has been at the forefront of the fight against inflation, employing a series of measures including a sustained increase in the Monetary Policy Rate (MPR) and stricter liquidity management to absorb excess naira from the system. On the fiscal side, the federal government has also intervened with targeted agricultural support schemes, the release of grain reserves, and import duty waivers on critical food items to ease supply-side pressures. According to analysts, these combined efforts are finally starting to work their way through the economy, leading to a gradual, albeit uneven, decline in price levels.
This disinflationary trend, however, is not without its caveats. Analysts at Cowry Research note that part of the year-on-year drop in food inflation from 39.53 per cent in July 2024 to 22.74 per cent in July 2025, is attributable to the NBS’s adoption of a new base year (November 2009 = 100). This change has recalibrated the measurement framework, making direct comparisons to earlier periods more nuanced.
On a month-on-month basis, food inflation also eased slightly to 3.12 per cent from 3.25 per cent in June, as the rate of price increases for staples such as vegetable oil, white beans, local rice, maize flour, and wheat slowed.
While the headline numbers offer a measure of relief, a closer look at the data reveals divergent trends and persistent structural issues. The monthly headline inflation rate, which captures short-term price dynamics, actually rose to 1.99 per cent in July, up from 1.68 per cent in June. This increase indicates that while prices are rising more slowly on an annual scale, short-term pressures remain, particularly in sectors like restaurants, accommodation, and transport, which are still experiencing notable price hikes.
The urban-rural divide further complicates the inflation picture. In July, urban inflation stood at 22.01 per cent year-on-year, showing a decline from the 35.77 per cent recorded a year earlier. Month-on-month urban inflation also eased to 1.86 per cent from 2.11 per cent in June, a signal that policy interventions are having a more pronounced effect in more urbanised regions.
Meanwhile, rural inflation stood at 21.08 per cent year-on-year, a substantial drop from 31.26 per cent in July 2024. However, on a month-on-month basis, rural inflation jumped to 2.30 per cent from 0.63 per cent in June. This underscores the volatility of price pressures in less urbanised regions, likely due to inefficiencies in food distribution networks, poor logistics, and a higher vulnerability to agricultural disruptions.
The consensus among analysts is that the sustained moderation in headline inflation is primarily a result of a favourable base effect, coupled with relative naira stability, improved foreign exchange liquidity, and a softening of global commodity prices, particularly for wheat and diesel.
Cowry Research notes that the gradual declines in both food and core inflation from June indicate that easing imported inflationary pressures and improved domestic supply factors are beginning to take hold. They project headline inflation to moderate further to 20.83 per cent in August, supported by early harvest inflows, continued FX stability, and subdued global commodity prices.
However, the outlook is not without significant risks. Analysts at nörrenberger cautioned that both global and domestic factors continue to pose upside pressures on inflation. On the global front, renewed trade frictions, such as the U.S.-led tariff measures against other economies, could disrupt global supply chains and stoke imported inflation.
Domestically, the structural challenges are more insidious and pervasive. Persistent insecurity in key agricultural regions continues to threaten food production, while the risk of severe flooding during the rainy season could undermine distribution networks and destroy crops. These factors, the analysts warn, could “undermine the expected disinflationary trend and keep inflation elevated for longer than anticipated.”
According to analysts, the stickiness in food and logistics costs means the path of disinflation will likely remain slow and uneven, keeping the recovery of the real sector and consumer purchasing power fragile.
The Central Bank’s conundrum
The latest inflation data places the CBN’s Monetary Policy Committee (MPC) in a challenging position. The four consecutive months of slowing inflation provide an argument for a rate cut, which would ease the burden on businesses and stimulate economic growth. The MPC’s last meeting, which maintained the MPR at a record high, was a tough decision aimed at anchoring inflation expectations and attracting foreign investment to stabilise the naira. Now, with inflation seemingly on a downward trajectory, the pressure to pivot is mounting.
However, an early or aggressive cut carries significant risks. As analysts argued, premature move could reignite inflationary pressures, particularly given the volatility in rural prices and the lingering global and domestic threats. However, it is agreed by all and sundry that the central bank’s primary mandate is to maintain price stability, and a misstep could undo the progress made over the last few months.
