Africa’s largest economy’s inflation is finally on the decline, presenting initial signs that the policy strategy adopted by the Central Bank of Nigeria (CBN) is at last beginning to bear fruit.
The convergence of high foreign exchange inflows, slowing growth in the money supply, and declining energy prices stabilized consumer prices for the second consecutive month.
Nigeria’s monthly headline inflation rate for May 2025 decreased to 22.97% from 23.71% in April. This is a modest but significant change compared to a more stable naira, tempered food inflation, and a 7% decline in petrol prices. Slowing the growth of the money supply also contributed to containing prices and justifying the efficacy of recent monetary reforms.
Among the major drivers of the improved inflation expectation is the slowdown in money growth (M2). Year-on-year money supply growth in 2024 accelerated by 75.5%, but in 2025, the rise resumed at a significantly slower pace of approximately 20.3%. On a month-on-month basis, M2 rose by a mere 1.3%, half the pace of 5.6% year-on-year last year. Tightening has curbed excess liquidity within the economy, dampening inflationary pressures and supporting currency stability.
Forex Inflows Support the Naira
A record foreign exchange inflow also helped strengthen the drive to stabilize prices. In Q4 2024, Nigeria saw a net FX inflow of $61.2 billion, a year-on-year increase of 99%. CBN Q4 data show aggregate inflows of $27.8 billion, 21% higher than the previous quarter, and outflows of $10.4 billion, 31% higher. These inflows have alleviated FX pressures and contributed to the narrowing of the official and parallel market exchange rate gap, thereby reducing the import costs of goods and services.
Naira Glows Despite Global Challenges
Against the background of increased geopolitical tensions, such as instability in the Middle East, the naira remains firm. It gained around 0.7% month-on-month to around 1,586 per dollar in late May. The reliability of the currency has been supported by local policies and falling petrol prices, with ex-depot PMS prices ranging between ₦875 and ₦905 per liter—a respite for consumers.
Rate Cuts on the Horizon
Economists now optimistically hope that rate cutting remains a possibility for the second half of 2025. Moderating core inflation provided space for easing, as noted by Afrinvest’s Ike Chioke. Structural problems in the food sector—corresponding to those in the agro-food supply chain—may continue to hinder lower prices unless addressed.
Why Inflation Matters to Nigerians
Knowing about inflation is not only abstract; it’s keeping hard-earned naira valuable. When inflation increases, the value of money reduces. Increasing inflation by a minimal percentage each month may be difficult to detect, but over time, it deprives each naira of what it can purchase—fuel and other essentials. Therefore, recent moderation of inflation is relief, however slim, despite persisting underlying pressures in the economy.
The Role of Policy and Structural Reform
Nigeria’s victory arises from the complementarities of policy innovations. In 2024, the Monetary Policy Rate was increased by 875 basis points to 27.5% by the CBN, evidencing fresh determination in price management. The central bank has also led the way in promoting tighter monetary and foreign exchange stability, with a healthy balance between fiscal and monetary authorities, as reaffirmed at the 2025 Monetary Policy Forum.
Financial Derivatives Chief Economist Bismarck Rewane indicates that the robust oil industry and rising refining capacity, driven by the Dangote Refinery, are central to sustained energy price stability. That lowers transportation and production expenses in the economy, lowering inflationary pressure in the long run.
Predictions and Futures In Store
Expectations are cautiously bullish. Macro Comercio Partners’ analysts expect headline inflation to fall to 15% by mid-2025 and then into the teens over the following months. This would further enhance the ongoing impact of a stable naira, stabilization in energy prices, and continued foreign exchange inflows.
Nigeria seems to be at the crossroads. With judicious management of the money supply, realistic policy changes, and a joint effort by economic institutions, Nigeria is well-positioned for price stability. The recent modest decline in inflation gives cause for hope. To make it last, Nigeria needs to develop its domestic capacity further, attract foreign capital flows, and continue to cultivate reforms that anchor the economy for long-term stability.
