Nigeria’s headline inflation slowed to 14.45% in November 2025, the eighth consecutive month of decline, the National Bureau of Statistics (NBS) reported.
The Central Bank of Nigeria (CBN), in its latest macroeconomic outlook, expects the trend to continue, with average inflation projected at 12.94% in 2026.
This slowdown comes against the backdrop of ongoing structural reforms, including foreign exchange unification and changes in the energy sector under President Bola Tinubu’s administration.
Still, economists and policymakers say the outlook is finely balanced. Several key factors could either support further cooling or bring back price pressures in the new year.
1. Food Prices and Agricultural Supply
Food inflation is the largest component of Nigeria’s consumer price index and a primary driver of headline figures. It declined sharply to 11.08% in November 2025, aided by better farm output and slight improvements in security across some farming communities, even as security challenges continue.
In 2026, keeping food prices stable will depend largely on continued growth in agricultural production, government support, and further reductions in insecurity.
Analysts warn that flooding, drought, or persistent banditry in major food-producing areas could quickly disrupt supply.
Staples such as bread, cereals, rice, and vegetables have historically been among the biggest contributors to inflation spikes.
2. Energy and Fuel Costs
Energy prices, especially Premium Motor Spirit (PMS or petrol), represent another critical watchpoint. The removal of fuel subsidy in 2023 by the Federal Government initially increased the nation’s inflation rate.
Better output from local refineries, including the Dangote Refinery, has improved supply, while the CBN expects lower fuel prices in 2026 due to stronger competition in the midstream oil segment and higher local production.
Nigeria’s oil output is estimated at 1.5 million barrels per day, benchmarked at $55 per barrel. Any production shortfalls could still feed into higher energy costs across Africa’s most populous nation.
3. Naira Exchange Rate Stability
Foreign exchange stability has been a major factor following the naira’s unification and floating in recent years.
The currency has shown relative calm, with the CBN forecasting an official rate near N1,400/$ in 2026.
Core inflation, excluding volatile food and energy, dropped to 18% in November 2025. This was due to the reduced pass-through effect from currency weakness.
Potential depreciation pressures could arise from fiscal deficits projected at around 3-4% of GDP or lower oil revenues.
4. Monetary Policy and Interest Rates
The CBN’s Monetary Policy Rate (MPR) stood at 27% toward the end of 2025, helping to rein in inflation by strengthening financial conditions and anchoring expectations.
As price pressures ease, gradual policy loosening is anticipated, potentially lowering lending costs. This will help to achieve the GDP growth forecast projected at 4.49%.
5. Fiscal Spending and External Shocks
Expanded fiscal outlays, including on infrastructure and social programs, could stoke demand if not offset by revenue gains from tax reforms. Global factors, such as trade tensions or commodity price swings, add external risks.
