Nigeria inflation seen cooling further in February ahead official data

The relative stability of the naira combined with the slowing food and fuel prices are expected to push Nigeria’s inflation rate further downward in February ahead of its release by the statistics agency.

The Nigerian economy is witnessing a gradual recovery after a tumultuous 19 months with naira steadying and prices of food and fuel slowly dropping, making a case for a decline in inflation data.

The naira remained relatively stable in February, fluctuating between N1,500/$ and N1,540/$ in both the parallel and official markets.

The exchange rate however saw a new low where it dropped to 1,590/$ last Friday on the street and N1,547.81 in the official foreign exchange market, known as the Nigerian Foreign Exchange Market (NFEM).

But food prices are dropping.

According to a market survey conducted by BusinessDay, prices of staples like rice, garri, pepper, tomatoes and onions have declined, providing relief for households squeezed by rising food costs.

Petrol prices are steadily slowing too, thanks to Dangote Refinery which reduced its PMS price three twice in February this year, dropping from N950 to N825, potentially easing inflationary pressures.

“I would expect a slight decline from the 24% in January,” said Samuel Oyekanmi, head of research at Abuja-based Norrenberger, a financial services group.

“FX was relatively strengthened in February, petrol prices also moderated, while from the base effects, February 2024 saw a significant surge, which would reflect on how February 2025 will print.”

Oyekanmi stated that while food prices decline might affect inflation data drop, he argued that the impact might not be “significant” as prices fell the most in March.

Nigeria’s inflation crashed to 24.48 percent in January up from 34.8 percent last December following the rebasing of the Consumer Price Index (CPI) by the National Bureau of Statistics.

The reweighting of the CPI basket also saw food inflation reading reduced to 26.08 percent from 39.84 percent in December 2024 as core inflation index, which strips out volatile agricultural products and energy prices, fell to 22.59 percent  from 29.28 percent in the previous month.

Similarly, analysts at Meristem, an investment firm, said that in the near term, inflationary pressures are expected to remain contained, driven by naira stability, stable PMS prices, and steady food supply.

“However, upside risks remain, including telecom and electricity tariff adjustments, potential supply disruptions during Ramadan, and elevated demand, which could trigger renewed price pressures in the coming months,” it said.

At Afrinvest they said in their February monthly report that inflation figures are likely to decline due to the rebasing effect.

“We hold that the year-on-year reading may reflect a false narrative for most of 2025 due to artificially low base year indices,”

“Looking ahead, we anticipate that the month-on-month reading should begin to realign and better reflect reality beginning in February,”  it said.

With headline inflation trimming down and the naira experiencing reduced volatility, the monetary authorities decided to pause its rate-hike cycle in February after a cumulative rate increase of 875 basis points in 2024.

For the fixed-income market, the improved inflation outlook, and expectations of a shift in policy direction sparked significant buying interest in fixed-income securities in the secondary market, leading to yield compression across the yield curve.

This led to a dip in the average yield on T-Bills and bonds dropping to 19.17 percent and 18.46 percent year-to-date, down from 21.97 percent and 20.03 percent, respectively pre-rebasing.

“We anticipate a further moderation in Nigeria’s headline inflation, driven by a stable exchange rate and reduction in food and fuel prices,” said analysts at FBNQuest Merchant Bank.

This is as the Central Bank of Nigeria’s monthly inflation expectations survey on households and businesses, indicated a drop in the inflation rate in February.