Naira stability, lower energy prices drive Nigeria's inflation downward
...as inflation drops for 5th consecutive month, hits 20.12%
By Seun Ibiyemi
Prominent economic experts have credited the recent stability of the naira and a decline in energy prices as the main drivers behind the reduction in Nigeria's inflation.
According to figures released by the National Bureau of Statistics (NBS) yesterday, Nigeria’s headline inflation rate continued its downward trajectory for the fifth consecutive month, easing to 20.12% in August 2025.
This significant decline, down from 21.88% in July, is a major win for the Nigerian economy and is largely attributed to a more stable naira and strategic monetary policies. The latest data, released by the National Bureau of Statistics (NBS), signals a favorable turn for both consumers and investors.
For capital market participants, this consistent drop in inflation is a crucial indicator of a stabilizing macroeconomic environment.
A lower inflation rate typically leads to reduced interest rate pressure, making borrowing cheaper for corporations and potentially boosting equity market valuations.
An FBNQuest analysts noted that the moderation in August was driven by softer energy prices and sustained FX liquidity, which has been a key focus of the Central Bank of Nigeria (CBN).
The naira has shown remarkable resilience, recording its strongest gain in seven months and strengthening to ₦1,506.08 to a dollar at the Nigerian Foreign Exchange Market (NFEM). This is a strong signal of growing confidence from foreign investors and is directly contributing to the disinflationary trend.
Dr. Ayo Teriba, a prominent economic expert, further elaborated on this dynamic, explaining that a stable exchange rate is the primary driver behind the inflation reduction.
He also provided a more nuanced view on how the Consumer Price Index (CPI) is calculated. While prices of items like petrol may have surged, he noted that consumer behavior has shifted, with people buying less.
This reduction in consumption of high-priced goods lowers their overall weight on the CPI, contributing to the deceleration of inflation. For instance, he highlighted a significant drop in meat consumption in Lagos, from 6,000 cows daily to 3,300, which also lessens its impact on the food inflation index.
Similarly, a renowned stockbroker, Biodun Fagbolu speaking recently on a financial talk show cited policy choices and shifting consumer behavior as key drivers of the naira’s recent gains.
Speaking, Biodun said, "I think from a demand and supply point of view, there’s transparency in the FX markets. We’ve seen a lot of inflows on the OMO. Oil production has increased. On the supply side, Nigerians have also changed their consumption habits.”
According to the NBS report, in August 2025, the urban inflation rate was 19.75 per cent, which was 14.83 per cent points lower compared to the 34.58 per cent recorded in August 2024.
On a month-on-month basis, the Urban inflation rate was 0.49 per cent in August 2025, down by 1.37 per cent compared to July 2025, which was at 1.86 per cent.
The corresponding twelve-month average for the urban inflation rate was 25.81 per cent in August 2025.
This was 7.63 per cent points lower compared to the 33.44 per cent reported in August 2024.
On the other hand, the rural inflation rate in August 2025 was 20.28 per cent on a year-on-year basis.
According to the NBS, this was 9.67 per cent points lower compared to the 29.95 per cent recorded in August 2024.
On a month-on-month basis, the Rural inflation rate in August 2025 was 1.38 per cent, down by 0.92 per cent compared to July 2025, which was at 2.30 per cent.
The corresponding twelve-month average for the Rural inflation rate in August 2025 was 23.07 per cent. This was 6.25 per cent points lower compared to the 29.32 per cent recorded in August 2024.
The food inflation rate in August 2025 was 21.87 per cent on a year-on-year basis.
This was 15.65 per cent points lower compared to the rate recorded in August 2024, which was at 37.52 per cent.
The NBS noted that the significant decline in the annual food inflation figure is technically due to the change in the base year.
“On a month-on-month basis, the Food inflation rate in August 2025 was 1.65 per cent, down by 1.47 per cent compared to July 2025 (3.12 per cent),” NBS stated.
The decrease, according to NBS, can be attributed to the rate of decline in the average prices of Rice (Imported), Rice (local), Guinea corn flour, Maize flour sold loose, Guinea Corn (Sorghum), Millet, Semolina, Soya milk, etc.
The average annual rate of Food inflation for the twelve months ending August 2025 over the previous twelve-month average was 25.75 per cent, which was 11.24 per cent points lower compared with the average annual rate of change recorded in August 2024, which was at 36.99 per cent.
The NBS report noted that core inflation, which excludes the prices of volatile agricultural produces and energy, stood at 20.33 per cent in August 2025 on a year-on-year basis; a decline of 7.25 per cent when compared to the 27.58 per cent recorded in August 2024.
On a month-on-month basis, the Core Inflation rate was 1.43 per cent in August 2025, up by 0.46 per cent compared to July 2025, which was at 0.97 per cent.
The average twelve-month annual inflation rate was 23.04 per cent for the twelve months ending August 2025, which was 2.14 per cent points lower than the 25.18 per cent recorded in August 2024.
While the overall trend is positive, the NBS report acknowledged that month-on-month price levels remain "sticky," suggesting that underlying inflationary pressures persist.
Analysts believe these pressures are driven by disruptions in the food supply chain, particularly due to security challenges in agricultural regions.
The consistent deceleration of inflation over the past eight months is a clear and unmistakable trend.
Experts project that if the current exchange rate stability holds, Nigeria's headline inflation could fall closer to 15% by the end of 2025, creating an even more favorable environment for economic growth and capital market activity.