Nigeria’s Headline Inflation Rate May Drop To 27% By December

Nigeria’s economic landscape is poised for a significant shift in 2025, as the headline inflation rate is projected to average 30.5% year-on-year, eventually easing to 27.1% by December. This forecast, detailed in the Nigerian Economic Summit Group (NESG)-Stanbic IBTC Business Confidence Monitor report, reflects expectations of moderating inflationary pressures and gradual improvements in economic stability.

Inflation Trends and Projections

The report anticipates that headline inflation will remain elevated in the first nine months of 2025 but drop below the 30% threshold from September onwards. The decline is attributed to the gradual elimination of high petrol prices from year-on-year inflation calculations, assuming no unforeseen adverse shocks to petrol prices occur.

The report states: “We expect headline inflation to remain sticky in 9M:25 but settle below 30.0% from September 2025 as high petrol costs get smoothened out of the year-on-year headline inflation, barring any unexpected negative shocks to petrol prices.”

Key factors influencing this inflation trajectory include:

• Fuel Prices: The easing of high petrol prices from inflation metrics is expected to provide relief.
• Exchange Rate Trends: Stability in the USD/NGN pair.
• Fiscal Policies: Adjustments to fiscal deficits.
• Food Supplies: Improvements in agricultural production and supply chains.

Monetary Policy Implications

The projected moderation in inflation is expected to impact monetary policy decisions significantly. According to the report, the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) may adopt an accommodative stance by late 2025. This could involve lowering interest rates to stimulate economic activity, particularly as the effects of the government’s flagship policies—foreign exchange liberalisation and fuel subsidy removal—begin to subside.

“A relatively lower headline inflation in H2:24 should support consumer spending, and business activity should also improve as the impact of the government’s two flagship policies subsides,” the report notes.

Economic Growth Outlook

The Nigerian economy is forecasted to grow at a rate of 3.5% year-on-year in 2025, an improvement from the estimated 3.2% growth in 2024. This positive trajectory underscores the resilience of the economy despite persistent inflationary pressures and sector-specific challenges.

Sectoral Performance and Business Activity

December 2024 saw a slight recovery in business performance, driven by seasonal demand during the festive period. The Current Business Performance Index, which measures economic activity across various sectors, improved to +0.77 from the -2.74 recorded in November. This marks the first positive reading since September 2024, signalling modest growth in business activity.

Sectoral Highlights

• Agriculture: The agriculture sector led the recovery with a net balance of +13.93, bolstered by increased harvest activities and heightened demand for agricultural products.
• Non-Manufacturing Industries: Demonstrated resilience with a net balance of +5.80.
• Manufacturing, Trade, and Services Sectors: Faced considerable difficulties, reflecting uneven performance across sectors.

Future Business Expectations

Despite the challenges, businesses maintain a cautiously optimistic outlook for 2025. The Future Business Expectation Index, which gauges optimism about future business conditions, registered at +28.61 in December 2024, down slightly from +33.17 in November. This index reflects expectations of improved conditions in Q1 2025, particularly within the agriculture, manufacturing, and non-manufacturing sectors.

Conclusion

Nigeria’s economic outlook for 2025 presents a mixed but cautiously optimistic picture. While inflation remains a significant challenge, the projected moderation and accompanying monetary policy adjustments provide hope for improved economic stability and growth. Sectoral performance, particularly in agriculture and non-manufacturing, highlights pockets of resilience, while businesses express measured optimism for the future.

As the year unfolds, policymakers, businesses, and individuals will need to navigate these trends carefully to capitalise on emerging opportunities and address lingering challenges.

Source: naijanews