Nigeria's headline inflation rate is forecasted to average 30.5% year-on-year in 2025, eventually settling at 27.1% by December 2025, according to the latest NESG-Stanbic IBTC Business Confidence Monitor report.

The projection hinges on expectations that inflation will remain persistent through the first nine months of 2025 but decline below 30% by September 2025, as the high petrol costs of 2024 are smoothed out of year-on-year calculations—barring unforeseen shocks to fuel prices.

Key Drivers of Inflation

Inflation continues to pose a major challenge for Nigeria’s economy, driven by rising fuel costs and currency depreciation, which have increased expenses across all sectors. The report noted:

"Headline inflation is expected to remain sticky in the first nine months of 2025 but should ease below 30.0% from September, barring any unexpected shocks to petrol prices."

Additionally, factors such as exchange rate movements, fiscal deficits, and food supply dynamics are critical in shaping inflationary trends.

Economic Outlook and Monetary Policy Implications

• The report predicts that Nigeria's economy will grow by 3.5% year-on-year in 2025, up from an estimated 3.2% in 2024, as the impact of government policies—foreign exchange liberalization and fuel subsidy removal—stabilizes.
• A projected decline in inflation in the second half of 2025 may encourage the Central Bank of Nigeria (CBN) to shift to a more accommodative monetary policy, possibly reducing interest rates to boost economic activity.

"A relatively lower headline inflation in the latter half of 2025 should support consumer spending and enhance business activities," the report highlighted.

Sectoral Performance and Business Sentiment

• Business Activity Recovery: Business performance saw a slight recovery in December 2024, driven by festive season demand. The Current Business Performance Index rose to +0.77, a notable improvement from -2.74 in November 2024, marking the first positive reading since September 2024.
• Sector-Specific Insights:
• Agriculture emerged as the top-performing sector with a net balance of +13.93, boosted by harvest activities and increased demand.
• Non-manufacturing industries showed resilience with a net balance of +5.80, while the manufacturing, trade, and services sectors faced challenges.

Future Business Expectations

The Future Business Expectation Index, which reflects optimism about upcoming business conditions, stood at +28.61 in December 2024, slightly down from +33.17 in November. Despite the decline, the index signals cautious optimism for improved conditions in early 2025, particularly in agriculture, manufacturing, and non-manufacturing sectors.

Overall, the report paints a picture of gradual economic stabilization for Nigeria, with easing inflation, cautious business optimism, and modest economic growth expected to define 2025.