Inflation persists as CBN holds rates: The limits of CPI rebasing

When Nigeria’s National Bureau of Statistics (NBS) rebased the Consumer Price Index (CPI) to a 2024 base year, many observers anticipated a shift in inflation figures. However, as we predicted in our earlier analysis, the rebasing was never expected to fundamentally alter the inflation trajectory but rather to provide a more updated measurement framework. Now, with the Central Bank of Nigeria (CBN) opting to retain the Monetary Policy Rate (MPR) at 27.50 percent and keeping other monetary policy tools unchanged, the reality is clear: inflation remains a major macroeconomic challenge.

The CBN’s dilemma: Holding rates in the face of inflation

The Monetary Policy Committee (MPC) met against the backdrop of a reported deceleration in inflation for January 2025. Yet, rather than adjusting rates, it unanimously chose to maintain the current tight monetary stance. The key takeaways from the MPC’s decision include:

1. Monetary Policy Rate (MPR) remains at 27.50 percent, with an asymmetric corridor of +500/-100 basis points.

2. Cash Reserve Ratio (CRR) for Deposit Money Banks stays at 50 percent, while that of Merchant Banks is unchanged at 16 percent.

3. The liquidity ratio remains at 30 percent.

Clearly, the CBN is not convinced that inflationary pressures have abated enough to warrant a rate cut. If rebasing had any material impact on reducing inflation, one would have expected a shift in policy stance. Instead, the MPC’s cautious approach underscores that Nigeria’s inflation remains structurally driven and beyond just statistical adjustments.

Read also: CBN retains interest rates at 27.5% amid rebased inflation

Why inflation remains high despite rebasing

As we previously analysed, rebasing the CPI was a technical exercise, not a solution to Nigeria’s inflationary crisis. The fundamental drivers of inflation—food price volatility, currency depreciation, supply chain disruptions, and structural inefficiencies—remain firmly in place.

• Food inflation still high: Although the rebasing adjusted the weight of food in the inflation basket, food inflation itself remains one of the highest globally. The recent 2025 inflation report showed food inflation at 26.08 percent, still a significant driver of overall inflation.

• Exchange rate pressures persist: The naira’s volatility against major currencies continues to affect import-dependent sectors, leading to higher production costs and consumer prices.

• Structural bottlenecks: Logistics, security challenges, and energy costs remain major impediments to price stability. Rebasing did not and could not address these issues.

What next? Beyond rebasing and monetary policy

The current inflation trend suggests that monetary policy alone will not solve Nigeria’s inflation problem. The CBN’s decision to hold rates is an acknowledgement that tighter monetary policy has its limits, especially when inflation is largely cost-push rather than demand-driven. To tackle inflation effectively, Nigeria needs:

1. Supply-Side interventions: The government must address food supply disruptions by improving security in farming regions, investing in storage infrastructure, and ensuring efficient distribution channels.

2. Exchange rate stability: Coordinated fiscal and monetary actions are needed to stabilise the naira and reduce imported inflation.

3. Energy and logistics reforms: Addressing fuel subsidy removal impacts, improving transportation infrastructure, and enhancing power supply will help lower production costs.

4. Proactive fiscal policies: The government must complement monetary policy with well-targeted fiscal measures, including tax incentives for local production and support for small businesses.

Conclusion

The CBN’s decision to maintain rates confirms that inflation remains a persistent challenge, and CPI rebasing has not provided any real relief. While rebasing helped refine statistical accuracy, it did not change economic realities. The focus must now shift from monetary policy alone to holistic economic reforms that address the root causes of inflation. Otherwise, Nigeria risks remaining stuck in a cycle of high inflation, tight monetary policy, and sluggish growth.