The Central Bank of Nigeria (CBN’s) policy reforms and strategies to tame inflation have led to drastic drop in inflation rate. The National Bureau of Statistics (NBS) latest Consumer Price Index (CPI) report showed that headline inflation rate dropped from 21.88 per cent in July to 20.12 per cent in August.
Analysts insist that the focus on price stability derives from the overwhelming evidence that it is only in the midst of stable prices that business and economic growth can be sustained.
Price and exchange rate stability are key roles that every central bank does not take for granted.
For the Central Bank of Nigeria (CBN) achieving price stability remains a key determinant of its policy directions.
For instance, the CBN-led Monetary Policy Committee (MPC) halted its policy rate tightening cycle at the first meeting of the year held in February 2025 by keeping its Monetary Policy Rate (MPR) at 27.50 per cent and maintaining other parameters unchanged. That was the first policy rate tightening pause since May 2022.
This decision, often called a “hawkish pause” was made to allow the effects of previous tightening measures to be fully assessed while still prioritizing price stability to combat inflation.
The decision was part of sustained policy measures and deployment of monetary policy tools to keep a positive inflation outlook and stabilize the naira across markets.
That decision has been yielding positive results as seen in the latest National Bureau of Statistics (NBS) Consumer Price Index (CPI) report.
According to the report, headline inflation rate dropped by 176 basis points from 21.88 per cent in July to 20.12 per cent in August.
The latest was the fifth consecutive decline since April and overshot average projections, although analysts had almost unanimously expected the disinflationary trend to continue.
The CPI report showed that food inflation dropped by 87 basis points from 22.74 per cent in July to 21.87 per cent in August. The decline in food inflation was attributed to decrease in average prices of basic food items including rice, guinea corn flour, maize flour sold loose, sorghum, millet, semolina and soya milk among others.
Also, core inflation, which comprised of all items excluding farm produce and energy, dropped by 100 basis points from 21.33 per cent in July to 20.33 per cent in August.
The NBS had reported that headline inflation rate eased by 34 basis points to 21.88 per cent in July from 22.22 per cent in June. Inflation rate had dropped from 22.97 per cent in May to 22.22 per cent in June, an improvement of 75 basis points.
Headline inflation rate had improved by 52 basis points to 23.71 per cent in April on the back of reduced food inflation. Composite inflation had for the first time after the January rebasing, risen by 105 basis points to 24.23 per cent in March as against 23.18 per cent recorded in February.
A breakdown of the latest CPI report also concurrence between the monthly and annual trends, underlining analysts’ consensus that the disinflationary trend was related to macroeconomic gains.
Bismarck Rewane’s Financial Derivatives Company (FDC) noted that Nigeria’s inflation rate is also driven by exchange rate with the stability in exchange rate impacting positively in inflation figures.
Analysts at CardinalStone said they expected the disinflation trend to continue citing the improvement in overall macroeconomic environment.
“The positive pass-through of the strengthening currency to inflation is likely to persist in September, with the official rate currently trading below N1,500.00 per dollar and having appreciated by 2.4 per cent month-to-date. The improving forex narrative reflects stronger fundamentals, especially with the current account coasting in the surplus territory, which has helped the forex reserves to reach $41.7 billion. Foreign portfolio inflows (FPI) inflows also remained net positive as Nigeria’s carry trade, the highest in Africa, remains attractive,” CardinalStone stated.
Other steps by the CBN
In its efforts to tame inflation, the CBN recently hosted the Monetary Policy Forum 2025, featuring fiscal authorities, legislative, private sector, 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.
He said moving from the exchange rate targeting framework to the inflation targeting framework aligned with the apex bank’s determination to bring inflation upsurge under control in line with its price stability mandate.
Inflation uptick has remained a major concern to the CBN and is the time to use monetary policy tools to control it.
Understanding inflation matters
According to CBN report, 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 double in the next period, the same N10.00 can only afford five shirts.
Aside the Gross Domestic Product (GDP) rebasing exercise which had positive feedback, a slight slowdown in food prices is being witnessed and a seven per cent 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.
At the same time, Nigeria’s crude oil production has continued to rise, exceeding its OPEC+ quota and offering a glimmer of hope for the naira.
Rewane said a stronger oil sector could mean more stable fuel prices and a boost in government revenue.
Director of Trading at Verto, Charlie Bird, said oil price stability or appreciation, strong dollar liquidity in NAFEM alongside a tight spread to 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.
Speaking during Cordros Asset Management seminar titled: “The Naira Playbook”, he said positive impact of CBN’s reforms has continued affect the market and economic indicators positively.
Inflation rate drop to persist
Nigeria could end the year with its lowest inflation in nearly a decade, according to the Independent Media and Policy Initiative (IMPI), which is projecting headline inflation will drop to 17 percent by December 2025.
The group, however, said the Central Bank of Nigeria (CBN) must match this rare economic momentum by easing its restrictive monetary stance.
In its latest policy statement, signed by Chairman Dr. Omoniyi Akinsiju, the think tank noted that the economy is experiencing one of its rare periods of disinflation, marked by five consecutive months of inflation decline.
It urged the Central Bank of Nigeria’s Monetary Policy Committee (MPC) to begin easing the benchmark interest rate to consolidate gains.
“Empirically speaking, the Nigerian economy is now in a disinflationary dispensation. Nigeria recorded a rare disinflation in 2025, with inflation falling from 24.5 per cent in January to 20.12 per cent in August, the sharpest mid-year slowdown in over a decade”, IMPI said.
According to the group, three key factors have shaped the current inflation deceleration: the Central Bank’s decision to hold rates at 27.50 percent, which curbed credit demand and speculative forex activities; relative stability in the foreign exchange market due to higher inflows from oil, remittances, and non-oil exports; and improved food supply following better harvests and calm in food-producing regions.
With inflation already below the Central Bank’s 21 percent target for the year, IMPI said the momentum could push the figure down to 17 percent by December, close to the federal government’s 15 percent goal.
“Attaining this target has huge microeconomic implications,” it stressed.
The policy group projected that the MPC may cut the Monetary Policy Rate by at least 50 basis points at its next meeting and by as much as 200 basis points before year-end.
It also recommended lowering the Cash Reserve Ratio from 50 percent to 35 percent by December, saying this would ease the cost of credit, spur business expansion, and support job creation.
Inflation decline comes with benefits
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, 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.
According to Ifeanyi Ubah, head of investment research and global macro strategist, at Comercio Partners reports, 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.
Earlier, Cardoso said global inflation is projected to decline to 3.5 percent in 2025, down from its peak of 9.4 per cent in 2022.
He disclosed that major central banks are gradually easing their monetary conditions and this shift is slowly reopening access to international capital markets for emerging economies.
