There has been a flurry of projections all pointing towards a decline in inflation this year but Nigerians are wondering if the slowdown will be a mere statistical decline or if it will lead to lower prices.
Drawing on historical data, expert insights, and real-world examples, falling inflation indicates price stability but does not guarantee a return to previous price levels.
Historical data from the past 17 years (2008–2024) reveals that inflation has decreased only five times—2011, 2013, 2014, 2018, and 2019. During these periods, prices of staple goods like bread, garri, rice, beans, cassava, maize, tomatoes, and groundnuts also fell. This demonstrates a key point: it is falling commodity prices that lead to a drop in inflation, not the reverse.
However, BusinessDay’s analysis also reveals that prices rarely return to previous levels after rising. Instead, they stabilise at higher levels before increasing or decreasing again.
For example, according to World Bank data, the price of garri fell from N18,215 in 2017 to N11,860 in 2019. Yet, it has since surged to N46,780 in 2023 and further to N161,974 in 2024. A future decline in inflation could see the price of garri fall below N161,974 but not revert to N46,780.
Read also: Here’re five projections of naira, inflation in 2025
Declining inflation doesn’t guarantee price reduction
Finance analyst Abdulrauf Bello provides a simple illustration and model using bread prices:
Bello explains based on the above data, “Inflation in 2011 was 20 percent, in 2012 it was 25 percent and by 2013 it had fallen to 15 percent. Yet, bread prices rose from N150 to N200. Declining inflation does not mean prices fall—it simply indicates that the pace of price increases has slowed. Think of it as reducing your speed from 100km/h to 50km/h; the car is still moving but at a safer pace.”
When inflation turns negative, as it did in 2016 (-10%), this is referred to as deflation. However, such scenarios are rare.
On whether the 15 percent inflation target by the Federal government will be achieved or not, Tilewa Adebajo, speaking on Arise TV, stated, “Let’s put this matter of inflation to rest once and for all. The only body in Nigeria responsible for determining inflation and interest rates is the Monetary Policy Committee of the Central Bank of Nigeria. While the presidency may desire low inflation, which is indeed laudable, actual inflation targeting will be revealed during the committee’s next meeting.”
Read also: Inflation seen settling at 27.1% in 2025 on lower petrol price, FX stability
Nigerians long for impact of decelerating inflation
In September 2024, the National Bureau of Statistics (NBS) reported that Nigeria’s inflation rate had slowed for the second consecutive month, settling at 32.15 percent in August. Yet, doubts linger about the accuracy of the data. Why? Many Nigerians do not see the impact reflected in their daily lives. As an X user, Bature Solomon, aptly questioned, “How come reality doesn’t match the inflation percentage?”
Such scepticism is understandable. Like Solomon, many Nigerians wonder whether the promised 15 percent inflation target for 2025, as outlined by President Bola Tinubu, will genuinely ease their economic struggles if met. This is a fair concern, given that the average consumer seeks to minimise costs while maximising utility.
However, experts like Bismarck Rewane, CEO of Financial Derivatives Company, Patrick Ejumedia, Head of Research at Sterling Asset Management & Trustees Limited, and Tilewa Adebajo, CEO of CFG Advisory, have deemed the 15 percent target “aspirational” and “unrealistic.” Adebajo argues that the government cannot dictate inflation levels, as that responsibility lies solely with the Central Bank of Nigeria (CBN).
That said, inflation could fall if Nigeria’s Gross Domestic Product (GDP) and Consumer Price Index (CPI) are rebased as scheduled for 2025. But even if it drops to 15 percent or, more likely, 25–27 percent as research firms predict, how much of an impact would it truly have on prices?
Why rebasing matters
Rebasing the CPI is essential for reflecting current consumption patterns. As Habu Sadeik, an energy expert, asked, “If cars in the 1980s sold for N5,000–N20,000 and now cost N5 million or more, why is inflation only 34.6 percent? Shouldn’t it be 50,000 percent?”
The answer lies in how inflation is measured. Inflation tracks annual price changes, not cumulative increases over decades. It considers a weighted basket of goods, where steep price hikes for items like cars are offset by smaller changes in others. CPI rebasing prevents inflation figures from compounding endlessly and accounts for shifts in spending habits.
The bottom line
While declining inflation may not lead to a significant drop in commodity prices, it signals price stability—the ultimate goal of monetary authorities. Prices may not return to past levels, but slower inflation ensures a more predictable economic environment, which benefits both businesses and consumers. As Nigeria moves towards its inflation targets, achieving price stability will remain critical in easing the economic burden on its citizens.
BusinessDay highlights the relationship between commodity prices and inflation, the role of CPI rebasing, and the importance of the Central Bank of Nigeria’s monetary policy in achieving sustainable economic outcomes.
