Tag: disinflation

• Macroeconomic stability to boost productivity •Average living costs to drop further

The improvement in average costs of goods and services could continue in the period ahead, sustaining a disinflationary trend that had seen inflation rate dropping for the fourth consecutive time.

Against the background of the weekend release of the latest Consumer Price Index (CPI) report by the National Bureau of Statistics (NBS), experts yesterday mostly agreed that inflation rate would continue to decline on the back of a stable macroeconomic environment.

The NBS reported that headline inflation rate eased by 34 basis points to 21.88 per cent in July 2025 from 22.22 per cent in June 2025. It was the fourth consecutive decline.

Inflation rate had dropped from 22.97 per cent in May 2025 to 22.22 per cent in June 2025, an improvement of 75 basis points.

Headline inflation rate had improved by 52 basis points to 23.71 per cent in April 2025 on the back of reduced food inflation. Composite inflation had for the first time after the January 2025 rebasing, risen by 105 basis points to 24.23 per cent in March 2025 as against 23.18 per cent recorded in February 2025.

The July 2025 inflation report showed that core inflation, which excludes volatile agricultural produce prices and in energy, decreased to 21.33 per cent in July 2025, compared with 22.76 per cent in June 2025. However, the composite food index increased to 22.74 per cent in July 2025 as against 21.97 per cent in June 2025.

Most experts said they expected the disinflationary trend to continue citing general stability in the macroeconomic environment, especially in foreign exchange (forex), food security and logistics.

Experts said sustained reduction in inflation rate could trigger the first interest rate cut under the current monetary policy administration.

Bismarck Rewane’s Financial Derivatives Company (FDC) attributed the decline in inflation rate to “a myriad of factors, including a reduction in premium motor spirit (PMS) and Diesel costs, moderation in money supply growth and exchange rate stability”.

FDC noted that while the rate of decline has slowed sharply and there could be a point of inflection, it was excited that inflation drivers now appeared more transient than structural.

“The good news is that core inflation, which excludes the prices of volatile agricultural products and energy, dipped to 21.33 per cent from 22.76 per cent. This implies that inflation is less driven by structural factors.

“The consensus opinion at this point in time is that the Central Bank of Nigeria (CBN) may cut the policy rate by 25 basis points at its next meeting in September,” FDC stated.

Analysts however, cautioned that decline in price of crude oil in the global markets and a reversal of the disinflationary trend could see Monetary Policy Rate (MPR) unchanged.

Chief Executive Officer, Centre for the Promotion of Private Enterprise (CPPE) Dr Muda Yusuf, said the disinflationary trend reflects a gradually stabilising macroeconomic environment, supported by exchange rate stability, improved investor confidence, and the lingering impact of import duty waivers on key staples such as rice, maize, and sorghum.

According to him, the July 2025 inflation report provides a basis for cautious optimism.

He, however, pointed out that while progress has been made in moderating headline and core inflation, the persistence of food and month-on-month price increases highlighted unresolved structural weaknesses.

“A coordinated mix of monetary, fiscal, and structural interventions will be required to consolidate recent gains and steer the economy toward sustained stability,” Yusuf said.

He outlined the need for caution and sustained reforms, with priorities in the areas of forex stability, structural reforms, fiscal discipline and monetary innovation.

He explained that policy authorities must maintain the calmness in the forex market to anchor inflation expectations while addressing constraints such as high logistics and import costs, insecurity, climate risks, and port inefficiencies that elevate costs and sustain inflation.

He stressed the need for prudent government spending and management of liquidity injections effectively to prevent fueling inflationary pressures.

He called on the CBN to upend its game in monetary innovation by moving beyond conventional tightening tools such as cash reserve ratio (CRR) and MPR toward more creative measures to manage liquidity in the economy, given that the lending rate in the economy had risen above 30 per cent for most businesses.

Managing Director, Arthur Steven Asset Management, Mr. Olatunde Amolegbe said inflation could decline to 20 per cent by the fourth quarter given the current forex stability.

“In as much as we are able to maintain a stable exchange rate and we are seeing improved food production, there is reason to be optimistic about increasing disinflation in the short run. Improvement in crude oil production as well as improvements in provision of infrastructure should also be positive for lower inflation going forward,” Amolegbe said.

SCM Capital stated that it expected inflation rate to continue its gradual downward trend in August, supported by forex stability, tight monetary conditions from the CBN’s hold policy, and subdued energy prices.

Analysts, however, cautioned that food inflation remains a key risk, as persistent insecurity in major food-producing regions and rainy season logistics challenges could sustain upward pressure on prices.

“While base effects may moderate year-on-year inflation, supply chain disruptions could lift month-on-month readings. Economic reforms, food harvest, and CBN’s inflation anchoring policy are however expected to support the disinflation momentum,” SCM Capital stated.

CardinalStone stated that inflation rate is expected to remain on its disinflationary path, aided by sustained declines in energy prices as the Dangote refinery maintains its distribution strategy, which removes transportation costs for fuel marketers and large-scale consumers.

Read Also: Inflation rate drops for fourth consecutive time

Analysts noted that supports like the energy cost, could offset upward pressures from food inflation risks and seasonal forex demand during the summer months—a trend typically seen in the third quarter.

Cordros Capital Group stated that it expected headline inflation may moderate again in August.

“We anticipate that inflation will maintain its downward trajectory over the near term, supported by sustained naira stability, improved food supply, and moderate increases in energy prices.”

“Notably, the naira has traded within the range of N1,520.00 per dollar and N1,545.00 per dollar so far in August, broadly in line with the previous month’s levels of N1,520.00 per dollar and N1,539.00 per dollar. This stability should keep the cost of imported goods steady and help anchor inflation expectations, which are often sensitive to exchange rate fluctuations.

“While energy prices remain somewhat volatile, the pace of increases has been far more moderate than in the same period last year, creating room for a continued decline in the year-on-year inflation rate, particularly for core inflation.

“For farm produce, supplies are expected to improve due to the onset of the green harvest, which typically peaks in August. This seasonal boost in availability is likely to exert downward pressure on farm produce prices, further easing food inflation in August.

“Consequently, we expect a further decline in the headline inflation rate in August, reflecting moderation in both food and core items,” Cordros Capital stated.

Analysts at Afrinvest West Africa stated that they expected inflation to maintain a gradual easing trajectory in the near term, supported by continued forex stability, early harvest inflows, and relatively subdued global commodity prices.

They however cautioned that persistent food supply constraints and seasonal factors could limit the pace of disinflation, keeping monthly inflation elevated in the months ahead.

The NBS had in January updated the weight and price reference periods in calculation of the CPI to make the inflationary gauge more reflective of changes in consumption patterns and the economy generally. The rebasing not only brought the base year closer to the current period, from 2009 to 2024, it also introduced some critical methodology changes to improve the computation processes.

After the rebasing, inflation dropped from 34.80 per cent in the pre-rebased period of December 2024 to 24.48 per cent in January 2025.

• Forex, energy remain downside risks

The costs of goods and services are expected to gradually decline over the second half as Nigeria’s long-running inflation narrowed to a halt.

Ahead of the release of the latest inflation rate by the National Bureau of Statistics (NBS) this week, all econometric models and surveys sampled on Friday indicated a thaw in inflation, with most experts expecting the actual disinflation to start from the July data.

The NBS had reported that inflation rate rose by 0.24 percentage points from 33.95 per cent in May 2024 to 34.19 per cent in June 2024. The 24 basis points increase in June represented a considerable slowdown from increases of 77 basis points and 49 basis points recorded in May and April respectively. The earlier slowest increase was in June 2023, when inflation rose by 38 basis points.

The Consumer Price Index (CPI) had risen from 33.20 per cent in March 2024 to 33.69 per cent in April. Nigeria has seen 19 months of consecutive inflationary pressure, pushing inflation rate to a 28-year high.

Most experts’ projections expected a decline in inflation starting from July, while some indicated inflation might rise further, albeit at its slowest pace in more than a year.

Analysts at Afrinvest West Africa estimated that inflation rate could drop by 107 basis points to 33.12 per cent in July. CardinalStone also expected headline inflation to moderate by 50 basis points to 33.7 per cent in July. Cordros Capital Group also stated that inflation might have peaked in June and should begin to decline in July, mainly due to a high statistical base from second half of 2023.

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Financial Derivatives Company (FDC) however projected that inflation would rise by 0.07 per cent to 34.26 per cent in July.

According to FDC, recent market survey showed a further build-up in inflationary pressures as supply chain disruptions continue to take their toll on prices.

“The foreign exchange uncertainty and the supply bottlenecks together with an increase in the price of petrol (PMS) are culminating in a further rise in headline inflation,” FDC stated.

Afrinvest explained that expected decrease could be largely attributable to the high base effect.

Analysts added that recent moderation in the price of some farm outputs such as yam, pepper, vegetables following early gains from green harvest, should support the projected moderation.

Afrinvest expected food inflation rate to drop to 40.4 per cent in July from 40.9 per cent in June, although PMS scarcity and forex volatility episodes could be major downside risks.

“Beyond the positive inflation outlook for July, we are of the view that the timely implementation of recent policy initiatives aimed at combating rising food prices by the federal government-re-opening of more land borders and planned 150-day duty-free window for food importation, could support an extended short-term relief from the elevated price pressure. Overall, barring any major shock to forex and energy goods prices, we hold that the headline rate should be on the downtrend for most of second half, beginning from July, thereby translating to modest relief on household’s purchasing power,” Afrinvest stated.

Analysts said the anticipated inflation decline would have positive effect on the equities market, with more investors showing interest on the domestic stock market.

Analysts said yields might have peaked in the fixed income market given the heavy frontloading of papers by the Federal Government in first half amid disinflation expectations.

FDC however stated that food inflation would likely inch up to 40.93 per cent despite the harvest season whit core inflation expected to move in the same direction to 27.48 per cent.

“Food inflation has become a major concern in Nigeria, affecting both the rich and the poor. This surge in food prices has significantly increased the cost of living, straining household budgets across all income levels. The rise in the cost of living has led to several cascading effects on the economy but what is most worrisome are the unprecedented hunger protests in most parts of the country. Such widespread demonstrations over hardship are a first for Nigeria and reflect the severe impact of inflation on daily life.

“There is a huge disparity between the Federal Government short-term price reduction measures, through the duty waiver on staples and the market realities. The price of rice has increased by 6.25 per cent, reflecting a shortage in the supply of rice. Traders have exploited the situation to re-price their inventory upwards. As a result, consumers are not seeing the expected relief in staple food prices as anticipated.

“In the near term, i.e. the inflation report for July is expected to remain elevated at 34.26 per cent. However, with the base effects of 2023 combined with the impact of the stimulus package-duty waiver on imports, we see inflation tapering in the month of September,” FDC stated.

President, Association of Capital Market Academics in Nigeria, Professor Uche Uwaleke, has said recent fiscal measures by the federal government designed to address food shortages would manifest in slowdown of costs.

According to him, fiscal initiatives, including President Bola Tinubu’s Executive Orders on import duties waivers on food items, N500 billion support for agriculture and N650 billion support for businesses, will lead to eventual gradual decline in inflation.

He noted that while the full impact of the fiscal measures may become more pronounced in 2025, there could be a gradual descent “in coming days”.

Experts at Cordros Capital Group said that inflation might have peaked in June and should begin to decline in July, mainly due to a high statistical base from second half of 2023.

“For clarity, the price shock that emerged from implementing the policy reforms in June 2023, including the removal of the PMS subsidy and the devaluation of the official exchange rate, started to reflect markedly in the July 2023 inflation numbers. Additionally, we do not expect a significant increase in PMS prices as subsidy payments on the product, which we estimate were effectively reinstated in February, are likely to remain intact amid the surge in living costs. Furthermore, we expect the naira to trade with muted volatility compared to the same period in the previous year, mainly due to the relatively improved foreign exchange (forex) liquidity and reduced speculation activities.

“Supporting the expected disinflation outlook is the recently implemented 150-day suspension of import duty on some food commodities, including maize, husked brown rice, wheat, and cowpeas. While the imposition of import duties on food items has driven up prices, the situation was exacerbated by the transition to a more flexible exchange rate system for estimating the cost of import duties. For context, the current approved rate for import duty is N1,549.00 per dollar, significantly higher than the pre-reform period of N422.30 per dollar in May 2023, significantly raising the total import duty costs charged on imported commodities. Thus, suspending the import duty on essential raw materials, particularly for food-processing industries, substantially reduces their production costs, potentially lowering the prices for processed foods. However, we expect the disinflationary impact of the policy to begin to reflect in the food inflation numbers for August and subsequent months, as food-processing industries may have already stocked up raw materials for July before the import duty removal.

“Specifically for July, we expect price pressures for food items to moderate as the festive-induced demand fades. Additionally, we expect the commencement of the green harvest to support lower prices of foods, including green maize, pumpkins, fresh groundnuts and seasonal vegetables harvested during this period. Additionally, food inflation on a month-on-month basis typically falls in July. For instance, between 2018 and 2022, food inflation month-on-month averaged 1.42 per cent in July, down from an average of 1.51 per cent in June. Accordingly, we expect food inflation to moderate to 2.20 per cent month-on-month, resulting in a year-on-year food inflation rate of 39.16 per cent in July as against 40.87 per cent in June,” Cordros Capital stated.

CardinalStone noted that the outlook for July’s inflation is likely to be mixed on the back of multiple factors including upside risks of the recent PMS scarcity and another electricity tariff hike for band A users, which will likely increase price pressure, as well as forex volatility stemming from increased forex demand for vacation and payment of foreign tuition fees.

Experts at CardinalStone however noted that while the upside risks highlighted possible increase in inflationary risk, the base effect should sufficiently moderate inflation rate in July 2024.

“Moreover, the government’s decision to suspend duties, tariffs, and taxes on the importation of certain commodities like Maize, husked brown rice, Wheat, and cowpeas for the next 150 days is expected to lead to lower food prices. The government’s plan to import 250,000MT of Wheat and 250,000MT of Maize also bodes well for the food price outlook, providing a positive counterbalance to the inflationary risks. Overall, we expect headline inflation to moderate by 50 basis points to 33.7 per cent,” CardinalStone stated.