Nigeria’s inflation rate continued its downward trend in May 2025, reflecting moderation across key components. Headline inflation dropped to 22.97% year-on-year, down from 23.71% in April, driven by declines in both core and food inflation. 1 On a monthly basis, price pressures also eased, signalling a gradual return of price stability amid ongoing monetary
tightening.
https://www.digital.zenithbank.com/ZEQ/ZEQ-jan-2026/index.html#p=1Core inflation fell to 22.28% in May, down from 23.39% in April, while food inflation inched down to 21.14% from 21.26%. On a month-on-month basis, food inflation edged up to 2.19% (from 2.06%), reflecting some seasonal pressures. Core inflation, however, slowed more visibly month-on-month to 1.10%, from 1.34%.
Several factors underpinned this broader decline in inflation. Dangote Refinery’s fuel price slash in late May added some relief at the pump and across supply chains.
2 The rebasing of the Consumer Price Index gave the figures a methodological refresh and the Naira, which has lately found some footing, provided further support by easing import cost pass-throughs. While the disinflation trend is encouraging, elevated month-on-month food inflation suggests that headline risks remain. Sustaining disinflation will depend on continued FX stability, energy
price dynamics, and supply-side interventions in the food value chain.
However, as the rainy season sets in, the risk of food inflation increases, driven by potential flooding in key agricultural regions. In addition, ongoing terrorist attacks in Benue, one of Nigeria’s major food-producing states could further disrupt supply chains and add upward pressure on food prices in the coming months.
Inflation Continues Descent in May as Stabilization Phase Gains Ground
Nigeria’s inflation decelerated further in May 2025, with headline CPI easing to 22.97% from 23.71% in April. This marks the second consecutive month of disinflation, reinforcing signs that the economy is transitioning into a stabilization phase.
The easing trend extended to core inflation, which declined to 22.28% from 23.39% in April, indicating cooling underlying price pressures. Month-on-month, core inflation also slowed to 1.10% from 1.34%, suggesting that consumer prices excluding food and energy are showing signs of restraint. This reflects relative price stability across key consumer categories. The May inflation data extended the disinflation trend observed in April, reinforcing signs that Nigeria may be entering an early stabilization phase. This emerging stability is underpinned by a combination of factors: relative price moderation across key consumer categories,
sustained exchange rate stability, and further reductions in petrol prices led by Dangote Refinery through its distribution network.
A technical driver behind the downward inflation trajectory is the rebasing of the Consumer Price Index (CPI) by the National Bureau of Statistics. The new base year, 2024, coincides with a period of historically high inflation, amplifying base effects and contributing to the moderation in year-on-year inflation readings.
Exchange rate dynamics also played a crucial role. In May, the naira traded within the ₦1,500–₦1,600 range to the U.S. dollar, reflecting improved FX market conditions. This relative stability was largely supported by the Central Bank of Nigeria’s intervention in the foreign exchange market, which helped contain imported inflation pressures and bolstered broader price stability.
Fuel Prices Cool, Naira Holds Strong—Inflation Gets the Memo
The recent decline in Nigeria’s headline inflation reflects a mix of improved currency stability and lower energy costs, two critical levers for macroeconomic adjustment. A relatively stable naira has helped ease import cost pressures, especially in core inflation components, while the ongoing reduction in Premium Motor Spirit (PMS) prices has dampened logistics and
transport-driven inflationary momentum.
Fuel price dynamics have also played a central role. The Dangote Petroleum Refinery, now a major player in the domestic energy landscape, has leveraged favorable global oil market conditions to implement strategic price cuts. The ex-depot price of PMS was slashed from ₦950 to ₦890 per litre, and subsequently to ₦825, marking a ₦125 reduction over the period.
These cuts were framed as part of broader efforts to ease consumer costs and align with ongoing economic recovery policies.
Cheaper PMS prices have translated into lower transportation and distribution costs, exerting downward pressure on headline inflation. Market deregulation and Dangote’s aggressive pricing strategy have introduced greater competition into the downstream sector, reshaping cost dynamics across the economy.
However, this benefit hinges on the sustainability of competitive pricing. Without strong regulatory oversight, the risk of monopolistic behavior could re-emerge, particularly in the absence of alternative large-scale refining capacity. Additionally, while immediate inflationary relief is evident, policymakers must assess the long-term impact of fluctuating global oil prices
and domestic market forces.
Also, the relative stability of the naira suggests improved forex liquidity, effective monetary policy interventions, and a better balance between forex demand and supply. However, maintaining this trend will depend on sustained foreign exchange inflows from oil exports, remittances, and foreign investments.
In the near term, inflationary pressures are expected to decline, supported by naira stability, steady PMS prices, and a stable food supply, aligning with Comercio’s 2025 Outlook, which projects inflation easing to 15%-20% by mid-year.
Food Inflation Risks Loom Amid Security and Climate Pressures
While headline inflation has shown signs of easing, food inflation risks remain elevated. As Nigeria enters the peak of the rainy season, concerns are growing over potential disruptions to food supply, especially from climate-related flooding and rising insecurity in key agricultural zones.
Benue State, often referred to as Nigeria’s “food basket”, has recently experienced renewed terrorist attacks and communal violence, affecting farming communities and displacing thousands. These security threats limit access to farmland, reduce planting activity, and disrupt supply chains, which could tighten food availability in the months ahead.
Simultaneously, the rainy season brings its own challenges. Historical patterns show that excessive rainfall often leads to flash floods in low-lying, high-yield farming regions, damaging crops and rural infrastructure. With climate unpredictability worsening, the risk of weather-related shocks to food production has grown more acute.
These overlapping risks, armed conflict and erratic climate conditions, could constrain food supply and push food prices higher. This is especially concerning given that food accounts for over 50% of Nigeria’s inflation basket. Any sharp rise in staple prices would have a disproportionate effect on overall inflation, eroding household purchasing power and stalling recent disinflation gains.
If sustained, these pressures could feed into higher month-on-month inflation prints in the near term, especially as transportation and storage costs also rise with poor road access and logistics breakdowns in affected regions.
In short, while monetary and exchange rate stability are helping anchor inflation expectations, structural issues tied to security and climate pose upside risks to food inflation, making it a key space to watch in the second half of the year.
Rate Cuts on the Horizon? MPC Weighs Its Next Move
The recent rebasing of Nigeria’s Consumer Price Index (CPI) has reshaped inflation dynamics, setting the stage for a pivotal Monetary Policy Committee (MPC) meeting. Throughout 2024, the CBN maintained an aggressive tightening stance, keeping the Monetary Policy Rate (MPR) elevated to curb inflation. However, with recalibrated inflation figures now in play, monetary
policy deliberations could take an unexpected turn.
As policymakers convene, the Monetary Policy Committee (MPC) may lean toward a more dovish stance, driven by recent signs of sustained disinflation. The downward trend in inflation reflects a fundamental improvement underpinned by price and currency stability. With the next meeting still two months away, the committee has time to assess inflation trends. If price moderation continues with minimal shocks, the CBN could move toward its first rate cut after a year of hawkish policy.
If inflation data remains moderate, the groundwork could be laid for a gradual policy pivot, signaling a shift away from the aggressive tightening that defined 2024. July’s decision will be a test of whether the CBN sees inflation cooling as a sustainable trend, or just a statistical reshuffling.
The naira’s fate, and Nigeria’s inflation outlook, will ultimately hinge on forex reserves, oil prices, and the CBN’s ability to keep monetary policy on course. Recent trends are encouraging, but inflation isn’t waving the white flag just yet.
Global Tensions, Local Pressures: Tracking the Inflation Risk Ahead
Ongoing geopolitical tensions in the Middle East particularly the escalating oil conflict between Israel and Iran have injected renewed volatility into global energy markets. These disruptions threaten global oil supply chains, driving up crude oil prices and raising concerns over a possible oil shock. Brent crude oil prices, which had been trading between $66 and $70 per barrel since March, surged by over 9% to reach $76 per barrel before retracing back.
While Iran accounts for about 4% of global oil production, the greater concern stems from the risk of the conflict extending to key maritime transit corridors, particularly the Strait of Hormuz. This narrow passage serves as the primary route for nearly 20% of global crude oil shipments, making it one of the most strategically important energy routes in the world. Any disruption to traffic through this area could significantly intensify supply pressures and trigger a sharper spike in oil prices. Additional uncertainty arises from the potential for regional escalation if neighboring countries become involved. Although a wider conflict appears
unlikely at this stage.
Despite domestic refining by Dangote Refinery, crude remains the key input, and higher international oil prices mean higher production and distribution costs.
A rise in global oil prices could lift the current pump price of petrol higher from ₦825 higher. This increase would ripple through the economy via transportation, logistics, and distribution channels raising the cost of moving food, goods, and services. Such a shift would put upward pressure on both food and core inflation, reversing some of the recent disinflation gains.
For Nigeria, where refined fuel prices are no longer subsidized and are influenced by global benchmarks, such developments carry direct economic consequences. Even though Dangote Refinery is producing locally, the cost of refining is still tied to global oil prices. If oil becomes more expensive, the pump price of petrol in Nigeria, currently around ₦825 per litre, could rise to ₦1,000 or more. This would lead to higher transportation and distribution costs, which feed into the prices of goods and services.
If petrol prices rise, inflation could climb again, especially through food prices and core inflation items like transport and housing. This could weaken the recent disinflation trend and make it harder for the Central Bank of Nigeria to cut interest rates as planned. Higher fuel costs would force the CBN to stay cautious to avoid inflation picking up again.
This scenario also complicates monetary policy. The Central Bank of Nigeria (CBN), which has maintained a tight stance to tame inflation, may be forced to delay any easing plans if rising fuel prices trigger a renewed inflationary surge. In a now deregulated fuel market, Nigeria is now more exposed to external oil shocks.
Geopolitical instability in key oil-producing regions doesn’t just influence international trade, it directly affects household spending, production costs, and inflation dynamics at home. The current tensions in the Middle East serve as a reminder that Nigeria’s inflation path remains vulnerable to global supply risks, and any spike in crude prices may undermine recent macroeconomic stability.
Outlook – Cautious Optimism with Upside Risks
Nigeria’s inflation appears to be entering a short-term stabilization phase, supported by a relatively stable exchange rate, lower PMS prices, and the statistical effects of a high base from 2024. Core inflation has begun to ease, and month-on-month inflation momentum is slowing, suggesting that earlier monetary tightening and improved FX liquidity are gaining traction.
However, the disinflation trend faces headwinds.
On the domestic front, food inflation remains vulnerable. Insecurity in key food-producing regions like Benue and the onset of the rainy season raise the risk of supply shocks due to disrupted farming and possible flooding. These could constrain food supply and push prices higher, especially in rural areas where logistics are already weak.
Externally, rising geopolitical tensions in the Middle East particularly the oil-related standoff between Israel and Iran are threatening global crude supply. If oil prices rise above $90–$100 per barrel, local pump prices could climb to over ₦1,000, reversing recent cost relief in transport and logistics and reintroducing inflationary pressure across the economy.
Such a scenario would complicate the Central Bank of Nigeria’s policy stance. While current indicators may support cautious rate normalization later in the year, any renewed surge in inflation driven by fuel or food price shocks could delay that timeline and keep monetary conditions tighter for longer.
Inflation is likely to moderate further, however, if fuel prices rise and food supply weakens, inflation could remain sticky and inch higher.
Overall, while near-term data signals progress, inflation risks remain skewed to the upside. Sustained disinflation will depend not just on monetary and exchange rate stability, but also on managing domestic security and climate-related vulnerabilities.
