S&P Global has lifted its forecast for Nigeria’s average inflation rate in 2026 to 16.9 per cent, up from a previous projection of 15.0 per cent, citing a stronger-than-expected pass-through from rising oil prices into domestic energy costs.
The revision, contained in S&P’s latest report titled Economic Outlook Emerging Markets Q3 2026: Inflationary Pressures Will Persist, places Nigeria in uncomfortable company. Among major emerging market economies in Europe, the Middle East, and Africa covered by the report, S&P said Nigeria had the largest upward revision to its inflation forecast.
The timing matters. Nigeria entered 2026 having recorded eleven consecutive months of declining inflation through late 2025, a disinflation run that gave policymakers, businesses, and households their first meaningful reprieve from the price pressures that defined the previous two years.
By February 2026, headline inflation had decelerated to 15.06 per cent, the lowest in over a year, following the Central Bank of Nigeria’s sustained monetary tightening and a period of relative exchange rate stability.
That momentum has since reversed.
Nigeria’s annual inflation rate rose for a third straight month to 15.93 per cent in May 2026 , the highest since last November, driven by food inflation accelerating to 17.8 per cent and transport costs climbing to 17.1 per cent, partly as a result of the continued pass-through of the March fuel price shock linked to the Middle East conflict.
S&P’s revised forecast suggests that trajectory has further to run. The agency warned that food inflation could rise further in coming months due to higher transportation and fertiliser costs, with energy inflation having picked up broadly across the region, particularly in Nigeria and Türkiye.
S&P cites the energy transmission problem
What makes Nigeria’s inflation dynamics particularly difficult to manage is the structural mechanism through which global energy shocks transmit domestically.
Since the removal of the fuel subsidy, pump prices move with considerably greater sensitivity to global oil market movements. Higher oil prices transmit rapidly into the domestic economy through fuel, logistics, and transport costs, increasing operating costs for businesses and household expenditure in ways that the CBN’s monetary tools cannot easily offset.
Development economist Prof. Ken Ife has described energy as a critical driver of Nigeria’s inflation due to its central role in transportation, production, and distribution: “When energy prices go up, petrol and diesel prices rise, and these drive the entire transportation system. The cost of moving food, goods and people increases, and that translates directly into higher prices across all sectors.”
For Nigeria’s small and medium-sized businesses, already operating under tight margins and high financing costs, the persistence of energy-driven inflation compounds an already difficult operating environment. It raises input costs, squeezes consumer purchasing power, and undermines the demand recovery that many sectors had been counting on as interest rates eased.
Growth also takes a hit
The inflation revision did not arrive alone. S&P reduced Nigeria’s 2026 GDP growth forecast by 30 basis points to 3.7 per cent, and cut its 2027 growth projection by an equivalent margin to 3.5 per cent. The agency linked the lower growth outlook directly to higher inflation and its dampening effect on household consumption.
Household consumption is the largest driver of Nigeria’s domestic economy. When inflation accelerates, real purchasing power erodes, discretionary spending contracts, and the growth multiplier from consumer activity weakens. S&P’s simultaneous upward revision to inflation and downward revision to growth captures that dynamic precisely, it is not merely a statistical adjustment, it is a statement about how energy-driven price pressures are eating into the economic gains Nigeria has been building.
The CBN’s dilemma
The revised S&P forecast creates a delicate position for the Central Bank of Nigeria. The CBN had set a transitional inflation target range of 16.5 to 18.5 per cent for 2026, with a further narrowing to 13 to 15 per cent targeted by 2027, a forward guidance framework designed to lock in disinflation credibility and anchor market expectations. S&P’s 16.9 per cent forecast sits within that target band, but at the upper end, and the direction of travel, three consecutive monthly increases in the headline rate, puts continued adherence to even that elevated target under pressure.
S&P noted that price pressures in Nigeria may remain elevated despite expectations of exchange-rate stability and higher oil output, a caveat that effectively flags the limits of the CBN’s available tools when the primary driver of inflation is a global energy shock rather than a domestic monetary or fiscal condition.
The global context
Nigeria is not navigating this challenge in isolation. S&P said inflationary pressures had increased across emerging markets in Europe, the Middle East, and Africa, and that compared with its March baseline, it had raised inflation projections and lowered growth forecasts for most emerging market economies in the region. The World Bank Energy Index rose to 146.4 points from 130.6 points, while the FAO Food Price Index climbed 1.6 per cent to 130.7 points, its third consecutive monthly increase.
But the scale of Nigeria’s revision, the largest upward adjustment in the peer group S&P surveyed, reflects the country’s particular structural exposure: a post-subsidy removal economy in which global energy prices transmit directly to domestic fuel costs, an agriculture sector heavily dependent on transport and fertiliser pricing, and a consumer economy where food spending represents a disproportionately large share of household budgets.
The disinflation story Nigeria was writing in late 2025 has not been abandoned. But it has been interrupted, and S&P’s revised forecast is the clearest signal yet of how much ground must be regained before the numbers that matter most to Nigerian households, businesses, and investors start moving in the right direction again.
