Inflation may drop to 27% by December – Report

Nigeria’s inflation rate is projected to decline to 27.1 per cent by December 2025, according to the latest NESG-Stanbic IBTC Business Confidence Monitor report.

This forecast offers a ray of hope to businesses and consumers struggling with prolonged economic difficulties, as it suggests that structural reforms are beginning to yield positive results despite lingering challenges.

Inflation remains a central concern for Nigeria’s economy, with rising fuel costs and currency depreciation driving up expenses across all sectors.

The report noted that inflationary pressures were particularly acute in 2024, following the removal of fuel subsidies and the liberalisation of the foreign exchange market.

However, the BCM anticipates a gradual easing of these pressures in 2025.

The report forecasts that headline inflation will remain elevated through the first nine months of 2025 but will decline significantly in the fourth quarter.

The report stated, “We expect headline inflation to remain sticky in 9M:25 but settle below 30.0 per cent from September 2025 as high petrol cost gets smoothened out of the year-on-year headline inflation, barring any unexpected negative shocks to petrol prices.

“This expectation, in addition to our prognosis on the USD/NGN pair, fiscal deficits, and food supplies, informs our forecast that the headline inflation may average 30.5 per cent y/y in 2025 and settle at 27.1 per cent by December 2025.”

The anticipated easing of inflation is also expected to influence monetary policy. According to the report, the Central Bank of Nigeria’s Monetary Policy Committee may adopt a more accommodative stance in late 2025, potentially reducing interest rates to stimulate economic activity.

The report further highlighted that business performance in December 2024 experienced a slight recovery due to seasonal festive demand.

The Current Business Performance Index, which measures economic activity across sectors, rose to +0.77, an improvement from -2.74 recorded in November.

This marked the first positive reading since September 2024, reflecting a modest uplift in business activity.

However, the performance across sectors was uneven. Agriculture emerged as the top-performing sector with a net balance of +13.93, spurred by heightened harvest activities and increased demand for produce.

Non-manufacturing industries also showed resilience, recording a net balance of +5.80. In contrast, the manufacturing, trade, and services sectors faced significant challenges.

The Future Business Expectation Index, which reflects optimism about future business conditions, settled at +28.61 in December 2024, down slightly from +33.17 in November.

Despite the decline, the index still indicates cautious optimism among businesses for improved conditions in the first quarter of 2025, particularly in agriculture, manufacturing, and non-manufacturing sectors.

Challenges that tempered business optimism include high operational costs exacerbated by inflation and exchange rate fluctuations.

Frequent power outages remained a critical issue, forcing many firms to depend on expensive alternative energy sources. Insecurity, limited access to financing, and cumbersome tax regulations further compounded the difficulties faced by businesses.

Although access to credit improved modestly in December, with a net balance of +8.25, the high cost of borrowing continued to act as a barrier to investment.

The report also highlighted persistent structural challenges hampering economic growth. The Cost of Doing Business Index surged by +50.32 in December, reflecting the mounting pressures on firms.

Despite these challenges, the report offered a cautiously optimistic outlook for economic growth in 2025.

Nigeria’s GDP is projected to grow by 3.5 per cent in 2025, up from an estimated 3.2 per cent in 2024.

This growth is expected to be driven by improved conditions in key sectors such as agriculture, manufacturing, and non-manufacturing industries.

The easing of inflation and the stabilisation of exchange rates are anticipated to bolster consumer spending and economic activity.