By NIyi Jacobs
Recent inflation figures have raised concerns among economists and policymakers, with financial analyst Bismarck Rewane warning that Nigeria’s persistent price surge reflects deeper structural problems. Despite a slight decline in the official inflation rate from 24.1% in January 2025 to 23.18% in February, the underlying factors driving inflation remain largely unaddressed.
Inflation and Structural Weaknesses
Inflation is not just a reflection of monetary policies but a symptom of structural inefficiencies. Rewane, speaking on Business Morning on Channels TV, pointed out that both core inflation and month-on-month inflation increased, signaling fundamental economic weaknesses.
“Once structural inflation is entrenched in a country, it doesn’t take long before you can switch from a moderate inflation level to a higher inflation level,” he noted.
Structural inflation in Nigeria stems from multiple factors, including supply chain disruptions, infrastructure deficits, currency depreciation, energy crises, and excessive reliance on imports.
1. Currency Depreciation and Forex Pressures
The Nigerian naira has experienced significant depreciation over the past year, driven by forex shortages and speculative attacks. The Central Bank of Nigeria’s (CBN) recent measures to unify exchange rates and clear forex backlogs have had limited success in stabilizing the currency.
A weaker naira makes imports more expensive, exacerbating inflation. Many manufacturers and businesses depend on imported raw materials, and rising costs are passed on to consumers.
2. Energy and Transport Costs
Persistent fuel price increases and electricity shortages have had a direct impact on inflation. The removal of fuel subsidies in mid-2023 initially led to an inflationary spike, and despite some stabilization, high transport costs continue to drive up prices of goods and services.
Logistics challenges—caused by poor road networks, high diesel costs, and insecurity—add to inflationary pressures. For instance, transporting agricultural produce from the northern part of the country to urban centers like Lagos and Abuja remains expensive, leading to higher food prices.
3. Agricultural Productivity and Food Inflation
Food inflation, a major driver of Nigeria’s overall inflation, remains stubbornly high. Despite government interventions, insecurity in food-producing regions, flooding, and low mechanization have constrained productivity.
The NBS data shows that food inflation was a key contributor to the February 2025 inflation rate, with prices of staples like rice, maize, and beans rising sharply. Rewane emphasized that increasing productivity in agriculture through investment in irrigation, mechanization, and security is critical to containing inflation.
“But once your productivity begins to increase significantly because of these bottlenecks…you’ll see the effects,” he stated.
4. Fiscal Policies and Government Borrowing
Nigeria’s fiscal deficit remains high, fueled by heavy government borrowing. While public debt management has improved slightly, excessive reliance on deficit financing has led to inflationary pressures. The government’s spending on subsidies, social programs, and infrastructure, while necessary, contributes to excess liquidity in the economy.
Increased borrowing also affects interest rates, making credit more expensive for businesses and households. The result is a weaker private sector, reduced investment, and slower economic growth.
Monetary Policy: CBN’s Inflation Control Measures
The CBN has responded to inflation through aggressive interest rate hikes. Since 2023, the Monetary Policy Rate (MPR) has been raised multiple times, currently standing at 22.75%. The aim is to curb excess liquidity and reduce inflationary pressures.
However, high interest rates also come with downsides, including higher borrowing costs for businesses and reduced access to credit. Small and medium-sized enterprises (SMEs), which form the backbone of Nigeria’s economy, are particularly affected.
Experts argue that monetary policy alone cannot solve Nigeria’s inflation problem. Structural reforms, improved fiscal discipline, and productivity-driven policies are needed.
Can Inflation Decline in 2025?
Despite the structural challenges, some experts predict that inflation may moderate in 2025. The Afreximbank Research Monthly Developments in the African Macroeconomic Environment report forecasts a decline in Africa’s average inflation rate from 8.6% in 2024 to 7.2% in 2025.
For Nigeria, several factors could contribute to lower inflation:
- Stabilization of the naira: If forex inflows improve through increased oil exports, diaspora remittances, and foreign investments, currency stability could ease inflationary pressures.
- Improved agricultural output: Enhanced security in food-producing areas and better access to farming inputs may help moderate food prices.
- Lower global commodity prices: A decline in international oil prices and shipping costs could reduce the cost of imports.
Dr. Muda Yusuf, CEO of the Centre for Protection of Private Enterprises (CPPE), believes that inflation in Nigeria may further decelerate in 2025 if the government implements policies to boost productivity and stabilize the exchange rate.
Conclusion: The Path Forward
Nigeria’s inflation problem is deeply rooted in structural inefficiencies. While monetary policy can provide short-term relief, sustainable inflation control requires long-term solutions such as:
- Enhancing forex stability through improved export earnings, foreign investments, and better monetary policies.
- Boosting energy and transport infrastructure to reduce production and distribution costs.
- Increasing agricultural productivity through security measures, mechanization, and irrigation.
- Strengthening fiscal discipline to curb excessive government borrowing and deficit spending.
Addressing these structural issues is essential to achieving sustainable economic stability. Without comprehensive reforms, inflation will remain a persistent threat to Nigeria’s economy.
