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Inflation has begun to wane in Africa’s most populous nation, thanks to rising foreign exchange inflows and a slowdown in money supply growth that’s kept prices stable for the second month in a row.
Headline inflation fell to 22.97 percent in May from 23.71 per cent in April 2025 on improved FX stability, easing energy prices, and a slowdown in money supply growth, suggesting that the key policy reforms by the Central Bank of Nigeria (CBN) appear to be paying off.
“Aside from the Gross Domestic Product (GDP) rebasing exercise, which had positive feedback, a slight slowdown in food prices is being witnessed, and a seven percent dip in petrol costs was also a welcome development.”
Broad money (M2) growth tempered to an average of 1.3 percent month-on-month and 20.3 percent year-on-year in 2025, against 5.6 percent month-on-month and 75.5 percent year-on-year in 2024.
The country also recorded a significant FX inflow in the fourth quarter of 2024, with net inflows up 99 percent year-on-year to $61.2 billion.
The CBN’s latest quarterly economic report for the three months to December 2024 shows that the overall FX inflow into the Nigerian economy increased by 21 percent quarter-on-quarter to $27.8 billion. Similarly, the value of FX outflow grew by 31 percent quarter-on-quarter to $10.4 billion.
To anchor inflationary headwinds, the CBN has raised the Monetary Policy Rate by 875 basis points to 27.5 percent in 2024 and has maintained the status quo at the two policy meetings held this year.
Read also: CBN’s policies trigger inflation rate dip as growth prospects rise
The financial sector regulator has also been controlling the growth of the money supply to achieve price stability.
Naira gains despite global tensions
The naira has continued to maintain its stability despite heightened global conflicts that have rattled emerging market currencies.
The naira appreciated by 0.7 percent month-on-month, closing at N1,586.15/$1.
Additionally, prices in the energy sector declined by 0.4 percent month-on-month in May. The monthly energy deflation was likely supported by reductions in Premium Motor Spirit (PMS) prices by Dangote Petroleum Refinery (and select independent marketers), which brought ex-depot prices down to a range of N875.00 to N905.00/litre across states and regions.
Ike Chioke, managing director, Afrinvest Nigeria Limited, told investors in an emailed report that while the positive strides in consumer price dynamics (especially core inflation) could set the stage for a potential rate cut by the MPC in the second half of this year, persistent risks in the food sector – stemming from agrarian and structural factors – are potent headwinds ahead.
According to the report, sustained currency appreciation and the lagged impact of PMS price cuts in late May are likely to counteract the impact of holiday-induced price hikes in some core items and keep the sub-component inflation modest.
Why lower inflation matters
Inflation is one of the most frequently used terms in economic discussions, yet the concept is variously misconstrued. There are various schools of thought on inflation, but there is a consensus among economists that inflation is a continuous rise in the prices.
Simply put, inflation depicts an economic situation where there is a general rise in the prices of goods and services, continuously. It could be defined as ‘a continuing rise in prices as measured by an index such as the consumer price index (CPI) or by the implicit price deflator for gross national product (GNP).
Inflation is frequently described as a state where “too much money is chasing too few goods”. When there is inflation, the currency loses purchasing power. The purchasing power of a given amount of naira will be smaller over time when there is inflation in the economy.
For instance, assuming that N10.00 can purchase 10 shirts in the current period, if the price of shirts doubles in the next period, the same N10.00 can only afford five shirts.
Read also; Drop in inflation rate yet to ease hardship for Nigerians
Aside from the Gross Domestic Product (GDP) rebasing exercise, which had positive feedback, a slight slowdown in food prices is being witnessed, and a seven percent dip in petrol costs was also a welcome development.
For many Nigerians, the numbers tell a good story and should be a forerunner to exchange rate and price stability.
An economist and CEO of Financial Derivatives Company Limited, Bismarck Rewane, said a stronger oil sector could mean more stable fuel prices and a boost in government revenue.
The Economic Intelligence Unit (EIU) projects a 4 percent rebound in retail sales in 2025, with consumer spending expected to recover modestly to $127 billion. There was also significant input by the monetary authorities in bringing inflation down.
Charlie Bird, director of trading at Verto, said a number of factors, including rising crude oil prices, portend positive signals for the economy.
He said oil price stability or appreciation, strong dollar liquidity in NAFEM alongside a tight spread to the parallel market, stable or increasing foreign reserve data and any form of FX appreciation with low volatility portend positive signals for the economy and will impact positively on inflation data.
Analysts said the various oil price shocks, the Covid-19 pandemic, and most recently, the war between Russia and Ukraine and Israel and Iran have resulted in various shocks to the global economy, requiring changing responses to subdue the monetary and fiscal authorities in the advanced and emerging market economies.
How low inflation supports the economy
The Comercio Partners, in its 2025 macroeconomic outlook, highlighted that the rebasing of Nigeria’s Consumer Price Index (CPI) to 2024 would also create statistical effects that could lower inflation figures.
From the stabilisation of exchange rates and the normalisation of energy prices following the subsidy removal to improved liquidity in the forex market, the economy has what it takes to achieve price stability within the year.
The Comercio Partners reports emphasised the importance of local refining capacity expansion, particularly with the launch of the Dangote Refinery. This development is expected to reduce the impact of exchange rate fluctuations on energy prices. By relying more on domestically refined petroleum, Nigeria is likely to see a reduction in energy price volatility.
This, combined with a more stable exchange rate, is expected to lower production and transportation costs, creating a positive ripple effect throughout the broader economy.
Read also: How dropping inflation affects investors
According to Ifeanyi Ubah, head of investment research and global macro strategist, “We expect headline inflation to decrease to around 15 per cent in the first half of 2025, indicating a gradual return to economic stability.”
In its efforts to tame inflation, the CBN recently hosted the Monetary Policy Forum 2025, featuring fiscal authorities, legislative, private sector, and development partners, subject-matter experts, and scholars with the theme “Managing the Disinflation Process”.
The forum is a major push to improve monetary policy communication, foster dialogue, and collaborate on critical issues shaping monetary policy.
During the event, CBN Governor Olayemi Cardoso explained that the apex bank’s focus is to sustain price stability, the planned transition to an inflation-targeting framework, and strategies to restore purchasing power and ease economic hardship.
He said the apex bank is continuing its disciplined approach to monetary policy, aimed at curbing inflation and stabilising the economy.
“These actions have yielded measurable progress: relative stability in the FX market, narrowing exchange rate disparities, and a rise in external reserves to over $40 billion as of December 2024.”
Cardoso reiterated that the goal of the CBN is to ensure that monetary policy remains forward-looking, adaptive, and resilient.
In addressing our economic challenges, collaboration is key: “Managing disinflation amidst persistent shocks requires not only robust policies but also coordination between fiscal and monetary authorities to anchor expectations and maintain investor confidence,” Cardoso said.
“Our focus must remain on price stability, the planned transition to an inflation-targeting framework, and strategies to restore purchasing power and ease economic hardship,” he added.
The CBN also focused on strengthening the banking sector, introducing new minimum capital requirements for banks (effective March 2026) to ensure resilience and position Nigeria’s banking industry for a $1 trillion economy.
These reforms and developments reflect the Bank’s commitment to creating an enabling environment for inclusive economic development. However, achieving macroeconomic stability requires sustained vigilance and a proactive monetary policy stance.
“As we shift from unorthodox to orthodox monetary policy, the CBN remains committed to restoring confidence, strengthening policy credibility, and staying focused on its core mandate of price stability,” Cardoso stated.
Read also: Inflation is falling, but businesses are still gasping for air
World Bank growth projection bodes well for the economy.
The World Bank recently gave a positive verdict on Nigeria’s economic growth trajectory, highlighting three years of unbroken growth for the country.
In the bank’s Global Economic Prospects for June, the bank posited that Nigeria will have three years of unbroken growth records – growing at 3.6 percent in 2025, 3.7 percent in 2026 and 3.8 percent in 2027.
The lender, however, slashed its global growth forecast for 2025 by 0.4 percentage points to 2.3 percent, saying that higher tariffs and heightened uncertainty posed a “significant headwind” for nearly all economies.
The bank said global inflation was expected to reach 2.9 percent in 2025, remaining above pre-COVID levels, given tariff increases and tight labour markets.
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