Nigeria’s inflation rate, a persistent challenge for its economy, is projected to drop to 27.1 per cent by December 2025, offering a glimmer of hope for businesses and consumers alike.
This forecast, contained in the NESG-Stanbic IBTC Business Confidence Monitor (BCM) report, suggests that ongoing economic reforms may gradually ease inflationary pressures, even as the country grapples with structural and fiscal challenges.
The inflation which surged to 34.60 per cent in November 2024 was primarily driven by the removal of fuel subsidies and the liberalization of the foreign exchange market. These policy shifts, while necessary for achieving fiscal stability, led to sharp increases in production costs and consumer prices across multiple sectors. By the end of 2024, inflation had reached critical levels, squeezing household purchasing power and reducing businesses’ profitability.
Despite these challenges, the report predicts that inflation will begin to ease in 2025, albeit gradually. Headline inflation is expected to remain high during the three quarters of the year, reflecting lingering pressures from elevated fuel prices and currency depreciation.
However, a significant decline is anticipated in the fourth quarter, culminating in a year-end rate of 27.1 per cent. This improvement is attributed to several factors, including the normalisation of petrol prices, increased exchange rate stability, improved agricultural output, and more effective fiscal management.
The report emphasises the role of high petrol costs in shaping inflation trends. It notes that barring unforeseen shocks, the year-on-year inflation rate will likely fall below 30 per cent by September 2025 as the impact of earlier fuel price increases diminishes. This stabilisation is expected to provide some respite to businesses and consumers who have endured prolonged periods of economic uncertainty.
The anticipated reduction in inflation could also prompt a shift in the monetary policy stance of the Central Bank of Nigeria (CBN) which has maintained a tight monetary policy to curb inflation through high interest rates.
However, the BCM report suggests that easing inflationary pressures may allow the Monetary Policy Committee (MPC) to consider reducing interest rates by late 2025. Such a move could stimulate economic activity and foster a more conducive environment for growth and investment.
While the inflation outlook shows promise, the report highlights the uneven impact on various sectors of the economy.
In December 2024, the agricultural sector demonstrated resilience, buoyed by harvest activities and increased demand for produce, while non-manufacturing industries also showed modest improvement. However, the manufacturing, trade, and services sectors struggle, weighed down by high input costs and subdued consumer demand.
Businesses remain cautiously optimistic about the future. The Future Business Expectation Index stood at 28.61 in December 2024, indicating hopes for better conditions in agriculture, manufacturing, and non-manufacturing industries in early 2025. However, challenges such as high operational costs, frequent power outages, and reliance on expensive alternative energy sources continue to erode profitability.
The report also underscores the persistent issues of insecurity, limited access to financing, and complex tax regulations, which dampen business confidence and hinder investment. While access to credit improved slightly in December 2024, the high cost of borrowing remains a significant barrier to expansion.
The projected decline in inflation to 27.1 per cent by December 2025 represents a critical milestone in Nigeria’s economic recovery journey. While challenges remain, easing of inflationary pressures could mark the beginning of a more stable and prosperous economic era, offering hope for businesses and consumers navigating the nation’s complex economic landscape.
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