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Nigeria’s recent deceleration in inflation has been attributed to improving macroeconomic fundamentals, enhanced foreign exchange inflows, and tighter monetary and fiscal coordination. Analysts say these combined dynamics are bolstering price stability and creating a pathway toward macroeconomic resilience.
According to the National Bureau of Statistics (NBS), Nigeria’s headline inflation rate fell to 22.97% in May 2025, down from 23.71% in April, marking a notable easing in consumer price pressures. Experts point to a confluence of factors—ranging from exchange rate stability and energy price moderation to the Central Bank of Nigeria’s (CBN) monetary tightening—as key drivers behind the slowdown.
Sustained FX Inflows, Controlled Money Growth
The CBN’s Q4 2024 economic report revealed a 99% year-on-year surge in net FX inflows, reaching $61.2 billion, driven by improved oil earnings and portfolio investments. Overall FX inflows rose by 21% quarter-on-quarter to $27.8 billion, while FX outflows increased to $10.4 billion, reflecting stronger investor participation and trade activity.
Simultaneously, broad money supply (M2) growth moderated significantly—averaging 1.3% month-on-month and 20.3% year-on-year in 2025, compared to 5.6% and 75.5% respectively in 2024. This aligns with the CBN’s commitment to taming inflation by reducing system liquidity and tightening monetary conditions.
The monetary authority’s inflation-targeting strategy, alongside a cumulative 875 basis points hike in the Monetary Policy Rate to 27.5%, continues to anchor inflation expectations and enhance policy credibility.
Naira Performance and Energy Price Moderation
The naira appreciated by 0.7% month-on-month, closing at ₦1,586.15/$ in May. The currency’s relative stability has been supported by steady CBN interventions in the official market and increased FX liquidity.
Concurrently, average energy prices declined by 0.4% month-on-month, aided by lower ex-depot prices for Premium Motor Spirit (PMS) supplied by Dangote Refinery and select independent marketers, who offered rates between ₦875 and ₦905 per litre across regions.
Sectoral Insights and Policy Impact
In an investor note, Ike Chioke, Managing Director at Afrinvest Nigeria Limited, noted that while easing core inflation may support a potential policy pivot later in the year, persistent vulnerabilities—particularly in food inflation driven by supply-side constraints—remain significant.
Charlie Bird, Director of Trading at Verto, highlighted that improved oil prices, stable reserves, and a narrowed FX spread are favorable indicators. “Liquidity in NAFEM, reduced market volatility, and positive reserve trends will continue to support inflation moderation,” he said.
The shift to an inflation-targeting framework—replacing the earlier exchange rate-centric model—underscores the CBN’s renewed focus on price stability and restoring purchasing power.
Structural Drivers: Local Refining and Investment Outlook
According to Comercio Partners, local refining capacity expansion, particularly the operationalisation of the Dangote Refinery, will help buffer domestic fuel markets from external price shocks. By reducing import reliance, Nigeria is expected to experience more stable energy prices and lower production costs across sectors.
Dr. Ifeanyi Ubah, Head of Investment Research at Comercio Partners, projected headline inflation could fall to 15% by H1 2025, reflecting the impact of stable exchange rates, subsidy reforms, and capital inflows.
Institutional Coordination: Managing Disinflation
At the CBN Monetary Policy Forum 2025, CBN Governor Olayemi Cardoso reaffirmed the apex bank’s policy direction. He cited the need for strong fiscal–monetary alignment to manage disinflation amid global headwinds.
“Our goal is to maintain a forward-looking, adaptive, and transparent monetary policy regime,” Cardoso stated. “We’ve seen relative FX market stability, narrowing rate gaps, and reserve growth above $40 billion as of December 2024.”
The governor reiterated that restoring confidence, strengthening banking resilience—through revised minimum capital requirements for banks effective March 2026—and curbing inflation are top priorities in positioning Nigeria’s economy for long-term, inclusive growth.
Global Outlook and Domestic Implications
The World Bank, in its June 2025 Global Economic Prospects, projected Nigeria’s economy will sustain a three-year growth trend, expanding by 3.6% in 2025, 3.7% in 2026, and 3.8% in 2027. This outlook contrasts with its global downgrade to 2.3% growth in 2025, citing geopolitical tensions, higher tariffs, and global trade disruptions.
Analysts stress that continued progress hinges on maintaining policy discipline, enhancing investor confidence, and deepening structural reforms that promote resilience and price stability.
“Nigeria’s transition from unorthodox policy interventions to orthodox monetary strategies is beginning to yield results,” said Cardoso. “But sustaining these gains will require collaborative governance and unwavering commitment to reform.”
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