Declining food prices: Assessing economic impact of CBN’s retained MPR at 27.5%
By Seun Ibiyemi
In its 299th meeting held on February 19-20, 2025, the Central Bank of Nigeria’s (CBN) Monetary Policy Committee (MPC) unanimously decided to retain the Monetary Policy Rate (MPR) at 27.5.per cent.
This decision comes in the context of a significant decline in food prices across the country, following the National Bureau of Statistics’ (NBS) rebasing of the Consumer Price Index (CPI), which adjusted the base year to 2024.
This recalibration resulted in a notable reduction of the headline inflation rate to 24.48 per cent year-on-year in January 2025, down from the pre-rebasing figure of 34.8 per cent in December 2024.
The food inflation index also decreased to 26.08 per cent year-on-year in January 2025, from 39.84 per cent in December 2024.
Also, in recent months, Nigeria has witnessed a notable decline in food prices, offering relief to consumers after a prolonged period of inflation.
This trend aligns with the National Bureau of Statistics’ (NBS) recent rebasing of the Consumer Price Index (CPI), which adjusted the base year to 2024.
Consequently, the headline inflation rate decreased to 24.48 per cent year-on-year in January 2025, down from 34.8 per cent in December 2024.
Food inflation also saw a significant reduction, standing at 26.08 per cent in January 2025, compared to 39.84 per cent the previous month.
Market surveys have reported significant price reductions in essential food items:
A medium bag of Pepper decreased from ¦ 33,000 in January 2025 to ¦ 28,000 in February.
A big bag of dry onions dropped by 43.2 per cent, selling at an average of ¦ 115,000 in February 2025, compared to ¦ 202,500 in the previous month.
The price of a medium-sized tuber of yam declined by 15.2 per cent, selling for an average of ¦ 3,500, compared to ¦ 4,125 last month.
The cost of refilling a 12.5kg cylinder cooking gas decreased to ¦ 14,400, compared to ¦ 18,750 last month, representing a 23.2 per cent decline.
These price reductions have been observed in various regions, including Lagos State and the North East, where staple food items have experienced significant declines.
Implications for the economy
Inflation Dynamics: The retention of the MPR at 27.5% indicates the CBN’s cautious approach, aiming to balance the recent decline in inflation with the need to sustain economic growth.
The rebasing of the CPI has provided a more accurate reflection of current consumption patterns, contributing to the observed reduction in inflation rates.
Consumer Purchasing Power: The decline in food prices enhances consumer purchasing power, potentially leading to increased household spending on other goods and services.
This shift can stimulate economic activity in various sectors, contributing to overall economic growth.
Agricultural Sector Impact: While consumers benefit from lower food prices, farmers and producers may experience reduced profit margins.
This situation could impact their income and investment capacity, potentially affecting future agricultural output.
Monetary Policy Considerations: The CBN’s decision to maintain the current MPR suggests a wait-and-see approach, allowing the effects of previous rate adjustments and the recent CPI rebasing to manifest fully in the economy.
This strategy provides the MPC with flexibility to respond to future economic developments as more data becomes available.
Conclusion
In summary, the CBN’s decision to retain the MPR at 27.5 percent amidst declining food prices reflects a strategic approach to managing inflation and supporting economic stability.
The recent reductions in food prices offer relief to consumers and may stimulate broader economic activity.
However, careful monitoring is essential to balance the interests of consumers and producers, ensuring sustainable growth in the agricultural sector and the economy at large
