Hardships: Hope rises as experts see Nigeria’s inflation cooling off in 2025
Onome Amuge
As Nigerians eagerly await the upcoming inflation data report, inflation, which soared to a three-decade high of 34.6 per cent in November 2024, is predicted to decline significantly in 2025, sparking cautious optimism among analysts.
In a potential glimmer of hope for Nigeria’s economy, analysts and economists alike, assert that inflation would moderate this year, creating conditions for a possible easing of the monetary policy rate (MPR) and a rebound of the naira, considered a welcomed development in Nigeria’s fight against price surge.
Nigeria’s inflation rate is predicted to fall to 27.1 per cent by December 2025, according to a recent report by the Nigerian Economic Summit Group (NESG) and Stanbic IBTC Bank.
This projection provides a glimmer of hope to businesses and consumers facing extended economic challenges, suggesting that structural reforms are bearing fruit despite lingering difficulties.
The forecasted decline in inflation also offers a potential lifeline to businesses struggling with high operational costs and consumers grappling with skyrocketing prices, signalling that the economy may be slowly but surely turning the corner.
Amid ongoing concerns about Nigeria’s economic stability, inflation has remained a key issue driven by rising fuel costs and currency devaluation.
The removal of fuel subsidies and the liberalisation of the foreign exchange market in 2024 further exacerbated inflationary pressures, pushing prices across sectors to new heights.
However, according to the NESG-Stanbic IBTC Business Confidence Monitor report, these pressures are expected to gradually ease in 2025, offering a glimmer of hope that the worst of the inflation storm may have passed.
According to the report, headline inflation is projected to remain high throughout the first three quarters of 2025 before making a substantial decline in the fourth quarter.
“We expect headline inflation to remain sticky in 9M:25 but settle below 30.0 per cent from September 2025 as high petrol cost gets smoothened out of the year-on-year headline inflation, barring any unexpected negative shocks to petrol prices.
“This expectation, in addition to our prognosis on the USD/NGN pair, fiscal deficits, and food supplies, informs our forecast that the headline inflation may average 30.5 per cent y/y in 2025 and settle at 27.1 per cent by December 2025.”
With the projected easing of inflation, the Central Bank of Nigeria’s Monetary Policy Committee (MPC) is anticipated to adopt a more accommodating monetary policy stance towards the end of 2025, potentially reducing interest rates to stimulate economic growth.
The report suggests that the MPC’s focus on controlling inflation will shift towards promoting economic expansion as inflationary pressures begin to subside.
Inflation outlooks from analysts at Afrinvest Research and the Economist Intelligence Unit (EIU) also suggest a potential decrease in the prices of goods and services in the Nigerian economy, which could provide a much-needed reprieve for Nigerians whose incomes were strained by rising costs in 2024.
While Afrinvest Research forecasts inflation dropping to 24.6 per cent, the EIU projects a slightly higher figure of 27.7 per cent.
According to analysts, both projections, if realised, could mean a strengthening of purchasing power for Nigerians, allowing them to buy more with their wages and savings.
Bismarck Rewane, CEO of Financial Derivatives Company, also provided a cautiously optimistic, yet still concerning, outlook for the Nigerian economy’s inflation. He anticipates a potential easing of inflation in the second half of the year, which would provide relief to strained household budgets and businesses’ profits.
Speaking at the First Bank outlook entitled ‘Nigeria 2025: Path to Economic Rebound & Recovery’, the renowned economist stated, “The moderation in inflation is not going to be as low as we expected. We’re going to be seeing 25 or 27 per cent by the end of the year with some luck.”
Rewane also pointed out that high inflation is likely to keep monetary policymakers from cutting interest rates, as doing so could further fuel inflation. Instead, he noted that interest rates will remain high until inflation starts to decline in the latter part of the year.
Analysts from Cordros Securities have also weighed in, providing three potential scenarios for inflation in 2025.
“For the base case, we expect the base price of PMS to range from N1,100/litre – N1,200/litre; the currency to trade between N1600.00/USD to N1950.00/USD in the Nigerian Foreign Exchange Market (NFEM); and electricity tariff hike of 15.0% resulting in a full-year average inflation rate of 32.40% y/y (2025 expected average).
“For the bull case, we assume PMS prices to range from N900.00/litre – NGN1,100.00/litre; the currency to trade between N1,300.00/USD to N1,650.00/USD in NFEM and no progressive hike in electricity tariff, leading to a full-year average inflation rate of 28.91% y/y (2025 expected average).
“Meanwhile, for the bear case, we posit PMS prices above NGN1,200.00/litre, a currency depreciation above NGN2,000.00/USD at the NFEM, and an electricity tariff hike of more than 15.0% bringing the full-year average inflation rate to 34.93% y/y (2023 average),” they stated.
In their analysis of Nigeria’s monetary policy, the analysts from Cordros Securities anticipate that the Monetary Policy Committee will likely hold the policy rate steady, following a possible increase of 25 basis points in January 2025. They then expect the first rate cut to happen in November 2025, reducing the Monetary Policy Rate to 27.25 per cent by the end of the year.
The analysts believe that maintaining restrictive interest rates is necessary to control still-elevated inflation risks and the existing negative real rate of return.
Cordros Securities also highlighted a potential worst-case scenario in which the naira exchange rate deteriorates beyond N2,000.00 per dollar and petrol prices spike above N1,200.00/litre. Under these circumstances, they predict that inflation could spiral out of control, necessitating further rate hikes by the MPC to curb rising prices.
Despite the potential easing of inflationary pressures in the Nigerian economy, several challenges such as currency depreciation, food inflation caused by insecurity and climate change, high energy costs, and elevated logistics expenses, could impede the pace of inflation decline in the country, as highlighted by Veriv Africa.
“The inflation rate is projected to average 31.81% in a bull case scenario, 34.52% in a base case scenario, and 37.16% in a bear case scenario. This will be a 1.75% improvement (base case) from an estimated average of 32.77% in 2024,” the leading data insights company stated.
President Bola Tinubu, in his 2025 restoration budget presentation, said inflation will drop to 15 per cent which financial experts described as too optimistic.