Inflation Drops In Nigeria As Naira Stability, Fuel Price Cuts Take Effect

Nigeria’s inflation rate dropped to 23.2% in February, marking the second consecutive decline since the National Bureau of Statistics (NBS) changed its methodology. This is a significant decrease from 24.5% in January, offering some relief to households struggling with high costs.

Experts say the lower inflation rate is due to the relative stability of the naira and a reduction in fuel prices, which has eased transportation and import costs.

READ ALSO: Food Inflation In Nigeria Drops To 23.51%, But Prices Remain High

How Naira Stability Helped Lower Inflation

The exchange rate plays a major role in determining the cost of goods and services, especially in an import-dependent economy like Nigeria. In February, the naira fluctuated between N1,400 and N1,500 per dollar but remained relatively stable.

CSL Stockbrokers highlighted that the naira appreciated by 2.1% month-on-month in the official market. This helped reduce the cost of imported goods, which, in turn, eased inflationary pressure.

Comercio Partners also noted that a stable exchange rate prevents excessive price hikes on essential goods, allowing businesses to plan better and stabilising the market.

Lower Fuel Prices Contribute to Inflation Reduction

The price of Premium Motor Spirit (PMS) saw a significant decline in February, contributing to the slowdown in inflation. The Dangote Petroleum Refinery reduced its ex-depot fuel prices, bringing the cost from N950 to N825 per litre.

This N125 reduction had a direct impact on transportation costs, making it cheaper to move goods across the country. Analysts say this led to lower prices for food and other essential items, further reducing inflation.

Comercio Partners explained that lower PMS prices reduce logistics costs, which in turn lowers inflationary pressure. The combination of market deregulation and competition among major players like Dangote Refinery has helped bring down fuel costs, benefiting consumers.

Impact on Food Inflation and Cost of Living

Food prices have been a major driver of inflation in Nigeria. However, February’s figures show a notable improvement. According to the NBS, food inflation dropped to 23.51% year-on-year, down from 37.92% in the previous year.

On a month-on-month basis, food inflation stood at 1.67%, signalling a break in price pressures on staple foods. This is a welcome relief for many Nigerians who have struggled with rising food costs over the past year.

What This Means for the Economy

The decline in inflation could have a broader impact on the economy. The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) may consider cutting interest rates in its upcoming meetings.

CSL Stockbrokers predict that the MPC may begin reducing interest rates in the second half of 2025, possibly starting in May. A lower interest rate would support economic activity by making borrowing cheaper for businesses and individuals.

Challenges and Future Outlook

While the drop in inflation is encouraging, analysts warn that sustaining these gains requires continuous market oversight. Without proper regulation, monopolistic practices could push prices back up.

Additionally, global oil price fluctuations remain a risk. If oil prices rise sharply, fuel costs in Nigeria could increase again, reversing the progress made in reducing inflation.

Policymakers must ensure that recent improvements translate into long-term stability. Measures such as strengthening forex reserves and improving local production will be key to keeping inflation under control.

Nigeria’s inflation decline is a positive development, driven by naira stability and lower fuel prices. If these trends continue, it could lead to lower interest rates, economic recovery, and improved purchasing power for Nigerians. However, policymakers must remain vigilant to sustain these gains and prevent a return to high inflation levels.