Inflation seen ending 2026 at 16% as analysts drop rate-cut call

Nigeria’s inflation is expected to end 2026 higher than previously forecast, prompting analysts at Cordros Securities to abandon expectations of interest-rate cuts this year as lingering energy costs and global supply-chain disruptions keep price pressures elevated.

In its 2026 half-year outlook, the Lagos-based investment firm raised its year-end inflation forecast to 16.03 percent, up from an earlier estimate of 14.70 percent , while projecting average inflation for the year at 15.51 percent, compared with its previous forecast of 14.80 percent.

The revised outlook follows the now more than four-month volatility in global oil markets triggered by tensions in the Middle East, despite a subsequent easing in crude prices after the United States and Iran reached a peace agreement and shipping through the Strait of Hormuz resumed.

Read also: Nigeria’s inflation seen pausing at 15.9% in June

“While the US-Iran peace deal and reopening of the Strait of Hormuz have eased pressure on global oil markets, we expect the shock’s economic effects to unwind more slowly,” Cordros said in the report.

Prices in Africa’s most populous economy rose for three consecutive months to 15.93 percent in May, buoyed by elevated food costs and fuel price socks.

But with moderation in energy prices, the pace at which prices are rising is expected to slow, bringing relief to households whose spending power had been squeezed.

Although Brent crude has retreated to $71.76 a barrel as of July 6, the firm said residual supply-chain disruptions, persistent geopolitical risks and the delayed pass-through of earlier energy price shocks would continue to exert upward pressure on domestic prices through the second half of the year.

“Sequential price pressures should soften as energy markets stabilise, but base effects and lingering energy-related cost pressures should leave the inflation path less linear and more vulnerable to renewed shocks,” it said.

The inflation outlook has also altered the firm’s expectations for monetary policy easing after a token rate cut of 50 basis points in February.

Cordros said it no longer expects the Central Bank of Nigeria to resume monetary easing this year and now forecasts the benchmark Monetary Policy Rate will remain at 26.50 percent through December.

The firm had previously projected cumulative rate cuts of 300 basis points in 2026.

The forecast suggests policymakers will prioritise containing inflation over supporting borrowing costs, even as price growth has slowed significantly from the multi-decade highs recorded last year.

Despite tighter financial conditions, the firm expects the economy to remain resilient, supported by digital services, financial-sector expansion and increased crude oil production.

Read also: S&P Global raises Nigeria’s 2026 inflation forecast to 16.9%

It projects Nigeria’s economy will grow 4.28 percent in 2026, compared with an estimated 3.87 percent in 2025, although elevated production costs and restrictive monetary conditions are expected to limit stronger expansion.

On the fiscal front, Cordros said stronger tax collection, revenue reforms and higher oil receipts should improve government earnings but will still fall short of financing needs.

It forecasts federal government revenue at N30.82 trillion, below the N36.87 trillion budget target, against projected expenditure of N57.70 trillion, leaving a fiscal deficit of N26.88 trillion, equivalent to 5.3 percent of gross domestic product.

That is expected to keep domestic borrowing elevated for the remainder of the year.

Even so, the firm remains constructive on Nigerian equities after a strong first half.

The Nigerian Exchange All-Share Index gained 47.4 percent in the first six months of the year, driven by strong corporate earnings, improving macroeconomic stability and market reforms.

Cordros expects investors to become more selective in the second half, favouring fundamentally strong and liquid companies.

It also expects foreign participation to improve if global uncertainty eases further and FTSE Russell restores Nigeria to its Frontier Market Index.

The firm’s base-case scenario implies about 30 percent upside for Nigerian equities from current levels.