Onome Amuge
Nigeria’s battle with inflation appears to be turning a corner. This is as headline inflation slowed for the fifth straight month in August 2025, raising hopes that the Central Bank of Nigeria (CBN) may finally have room to ease monetary conditions after nearly two years of relentless tightening.
Data from the National Bureau of Statistics (NBS) showed annual inflation fell to 20.12 percent in August, down from 21.88 percent in July and a far cry from the 32.15 percent recorded a year ago. It was the lowest reading in almost two years, providing what appears on paper as a rare moment of relief for policymakers and consumers alike.
On a month-to-month basis, prices rose just 0.74 percent in August compared with 1.99 percent in July, signalling that price increases are moderating across much of the economy.
But the headline numbers only tell part of the story. Beneath the surface, disparities remain between urban and rural areas, with rural inflation still stickier at 20.28 percent compared to 19.75 percent in the cities. Food prices, which make up more than half of Nigeria’s consumer basket, are easing but remain painfully high for millions of households. And core inflation, the measure that excludes volatile food and energy, actually picked up month-on-month, indicating that inflationary risks are not fully behind the economy.
Still, the disinflation trend has given oxygen to growing expectations that the CBN could soon pivot away from its ultra-tight stance.
The numbers behind the relief
The breakdown of the NBS data shows that the easing in August was driven by declines in the prices of key staples including rice, maize flour, guinea corn flour, millet, semolina, and soya milk. Food inflation slowed to 21.87 percent year-on-year, down from 37.52 percent in August 2024. On a monthly basis, food prices rose 1.65 percent in August, compared with 3.12 percent in July.
Urban inflation eased more sharply than rural, highlighting differences in how supply chain costs, insecurity, and infrastructure gaps shape price dynamics across regions. “We are seeing improvements in food supply chains in the South and urban centres, but the North continues to struggle with insecurity and flooding,” said one analyst at Chapel Hill Denham.
Across Nigeria’s 36 states, inflation patterns were uneven. Ekiti posted the highest year-on-year rate at 28.17 percent, followed by Kano at 27.27 percent and Oyo at 26.58 percent. Zamfara, Anambra and Enugu recorded the lowest readings, at 11.82 percent, 14.16 percent and 14.20 percent respectively.
Food inflation remained especially high in Borno (36.67 percent) and in Kano (30.44 percent), while Zamfara (3.30 percent) and Yobe (3.60 percent) recorded the lowest levels.
The disinflation momentum reflects a combination of monetary tightening, fiscal interventions, and improved supply conditions. The CBN has held the Monetary Policy Rate (MPR) at a record-high 27.5 percent since July, while aggressively mopping up liquidity from the banking system to absorb excess naira.
Analysts say the key question now is whether the disinflation trend is sustainable enough to allow the CBN to pivot.
All eyes on the MPC
The timing of the NBS data is crucial. The CBN’s Monetary Policy Committee (MPC) meets September 22–23 to decide on interest rates. Five months of easing inflation, a firmer naira, and rising reserves are fuelling speculation that the MPC might shift its stance.
Analysts at Cowry Research argue that the MPC may use the meeting to acknowledge the disinflation trend while holding back from aggressive easing. “The sharp moderation in headline inflation in August could provide room for a symbolic rate cut to signal confidence, but we think the committee will tread carefully,” the firm wrote in a note.
At its last meeting in July, the MPC voted unanimously to hold rates steady at 27.5 percent. Governor Olayemi Cardoso emphasised then that while macro conditions had improved, the pace of disinflation remains tepid and insufficient to warrant easing.
Those remarks continue to resonate in markets. “Cardoso’s tone was unambiguous: protect the gains. That translates into another hold in September unless inflation falls even more sharply,” said Kemi Adesina, head of research at Alpha Capital Advisory.
The risks that remain
Nigeria’s inflation outlook is clouded by both domestic and global risks.
Domestically, insecurity in agricultural regions, coupled with poor logistics and the risk of flooding, continues to disrupt food production and distribution. “The northern grain belt remains vulnerable. Any major disruption could send food inflation back up,” said Chijioke Nwosu, economist at Renaissance Africa Partners.
Globally, renewed trade frictions, such as the U.S.-led tariff measures, threaten to disrupt supply chains and stoke imported inflation. Oil price volatility also poses a major risk, given Nigeria’s dependence on crude exports for FX earnings.
Meanwhile, core inflation’s uptick in August (1.43 percent month-on-month) highlights persistent pressures in housing, utilities, transport, education, and healthcare. These categories weigh heavily on household budgets, even as food prices ease.
Businesses and households caught in the crossfire
The continuation of high interest rates has created a double-edged reality. For investors, it signals stability and discipline. For businesses and households, it has meant cripplingly high borrowing costs.
Small and medium-sized enterprises (SMEs) are among the hardest hit. “Borrowing at over 30 percent is unsustainable.Without cheaper credit, we cannot expand production, even though demand is recovering,” said Funke Olatunji, CEO of a Lagos-based manufacturing firm. Manufacturers warn that prolonged tight conditions could choke investment in new capacity, undermining job creation. Households, too, are feeling the squeeze from expensive consumer loans, with many resorting to informal credit sources.
Yet, analysts caution that cutting rates too early could reignite inflation, undoing the progress of the last five months and putting further pressure on the naira. “Short-term pain is unavoidable,” If we rush into easing, we risk repeating the boom-bust cycle that has haunted Nigeria’s economy,” said Nwosu.
Investors balancing risk and return
Foreign portfolio investors have cautiously re-entered Nigeria’s debt markets, encouraged by improved FX stability and higher nominal yields. But negative real yields remain a sticking point.
“Investors want credible, market-based instruments that reflect true pricing. The mention of yield curve development by Cardoso is a step in the right direction, but more needs to be done,” said Sarah Bello, portfolio manager at Westbridge Asset Management.
In the equity market, sentiment has improved on the back of policy stability and naira strength, even if corporate borrowing costs remain high. “For equities, consistency is more important than cheap money. Investors can plan when the policy environment is predictable,” said Tunde Adebanjo, managing director of Apex Macro Strategies.
Nigeria’s cautious stance mirrors global central banking trends. The U.S. Federal Reserve and Bank of England have paused after aggressive hiking cycles, resisting pressure to cut until inflation is firmly anchored. The European Central Bank has trimmed slightly but remains vigilant.
Consensus is firm that the CBN will hold rates again in September, while keeping its rhetoric hawkish to reinforce discipline. “At best, they can send a message of patience,that easing will come, but only after inflation is decisively under control,” said Adesina.
For now, the central bank seems willing to absorb the political and social costs of high rates in exchange for policy credibility. “The scars of past mistakes; cutting too soon and losing credibility, still run deep,” said a Lagos-based fund manager.
If inflation continues to ease into the final quarter of 2025, however, the debate will shift. Analysts assert that policymakers may then face pressure to deliver a symbolic rate cut to stimulate growth, especially as unemployment and consumer strain remain significant.
“The turning point could be December. If headline inflation drops below 19 percent, the MPC will have to consider at least a small cut to signal confidence,” said Bello.
