Nigeria’s Path to Achieving Single-Digit Inflation

The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) has just released the communique from its 305th meeting, which was the third session held this year.

In a unanimous decision, the committee chose to keep the monetary policy rate (MPR) – the benchmark interest rate that influences the country’s borrowing costs – at 26.5 percent. Although interest rates are not a direct component of the consumer price index (CPI), they affect inflation through demand, exchange rates and inflation expectations.

CBN Governor Olayemi Cardoso eased concerns in the communique, noting that “although inflation has increased marginally for two consecutive months, the committee believes the trend is temporal and largely caused by external shocks.”

Cardoso also said that “the current macroeconomic environment will return the country to a disinflationary trend in due course based on a comprehensive assessment of risks to the outlook.”

According to the apex bank chief, “the MPC recognises its transitory nature and remains confident that the current macroeconomic environment is sufficiently robust to support a return to disinflation.” He added that the spillovers from the Middle East crisis – which have pushed up energy prices, transportation costs and logistics worldwide – are expected to ease.

The committee also conveyed hope that “the impact of the crisis on the Nigerian economy has been minimal due to the benefits of prior policy reforms.”

Inflation is now a burden for all sectors – households, manufacturers and businesses – not just the poor. For low‑income earners, there is no guarantee that their modest wages will buy the same quantity and quality of goods at the next market visit, while businesses find it harder to plan as forecasts are frequently disrupted.

The National Bureau of Statistics (NBS) reported that Nigeria’s headline inflation rate rose to 15.69 percent year‑on‑year in April 2026, up from 15.38 percent in March, mainly driven by higher food, transportation and logistics costs.

Although this represents a sharp decline from the 34 percent peak seen in 2024, persistent structural challenges, foreign‑exchange volatility and imported energy shocks continue to hinder the CBN’s goal of achieving a 6 % to 9 % range.

Nigeria’s path to single‑digit inflation remains a long, arduous journey. A formal inflation‑targeting regime with a published target of 6 – 9 % would give businesses and households a clear benchmark for pricing, wages and investment. Yet, the CBN and the Ministry of Finance maintain that the disinflation path will stay steady despite global headwinds, while the Nigerian Economic Summit Group (NESG) projects that single‑digit inflation will not fully stabilise until 2029.

The World Bank has warned that achieving a single‑digit target in the short term may be unrealistic without addressing domestic supply and production constraints.

Reaching this target is difficult because of entrenched systemic hurdles – a large informal sector, policy reversals and global shocks. After nearly a year of steady disinflation, headline figures climbed again in April 2026, driven mainly by food and energy costs linked to the Middle East conflict and structural deficiencies in the system.

Structural bottlenecks such as infrastructure deficits, supply‑chain disruptions and insecurity in major agricultural belts limit local food supply and constrain near‑term disinflation.

To curb inflationary pressures, the CBN has relied heavily on monetary tools over the years. These tools reduce the money supply or make money more expensive, thereby dampening demand and curbing price rises. Traditionally, the CBN deploys orthodox methods – the MPR, cash reserve requirements (CRR), liquidity ratio and open‑market operations (OMO) – and sometimes combines them with unorthodox techniques. Other measures include the loan‑to‑deposit ratio (LDR), foreign‑exchange unification, credit control, moral suasion and, more recently, a bank recapitalisation exercise that helps temper inflation under a tight policy regime.

However, these measures have limits, especially given Nigeria’s socioeconomic landscape. The large informal sector creates a lag in the monetary‑policy transmission mechanism, often ranging from six to 12 months.

Supply shocks in food and energy also reduce the effectiveness of orthodox tools. Both factors contributed to the 15.69 % CPI figure in April 2026, driven by food and fuel prices amid insecurity and the Middle East conflict. More than 50 % of Nigeria’s CPI is food. If insecurity keeps farmers away from farmlands or natural disasters wipe out crops, higher rates will not raise food supply. Raising the monetary policy rate can only shrink demand, not increase supply spontaneously.

Inflation in Nigeria is driven not only by monetary factors but also by deep‑rooted supply‑side shocks: insecurity in food‑producing regions, energy deficits, exchange‑rate volatility and weak infrastructure.

These realities mean that the CBN’s policy rate, no matter how aggressive, cannot singlehandedly deliver price stability. Monetary tools can slow demand, but they cannot grow food, fix roads or stop oil wars. At best, CBN policies work best when complemented by effective collaboration with the fiscal authority. Without fiscal discipline and supply‑side fixes, rate hikes alone may slow growth without tackling inflation.

The CBN has since embraced a form of inflation targeting to tame inflation and anchor expectations appropriately by focusing on price stability as its primary goal, adopting a forward‑looking approach with an emphasis on inflation expectations and forecasts, and maintaining transparency through the publication of the MPC communique.

Inflation targeting, the basis of Cardoso’s strategy since 2025, is a monetary‑policy approach in which a central bank sets an explicit inflation target and adjusts interest rates and other tools to achieve this goal. It is transparent and accountable compared to monetary targeting, which has not controlled inflation in real terms.

This approach provides a structured method for controlling inflation, especially in Nigeria, where inflation has been a long‑standing obstacle to economic stability.

This is evident in the leadership’s aggressive monetary‑policy stance aimed at tackling Nigeria’s persistently high inflation rates, as reflected in the series of decisions made by the MPC.

For inflation targeting to work, monetary policy must be complemented by fiscal discipline, improved agricultural productivity, energy‑sector reform and stronger institutional coordination. Without these, Nigeria risks a cycle of high interest rates that constrain growth while inflation remains persistently elevated.

At this point in time, the focus should be on what Nigeria must do for inflation targeting to work effectively. Both the fiscal and monetary authorities must align for proper coordination. There should be no more deficit monetisation or financing. For the apex bank to succeed in tackling inflation, fiscal authority must balance strict monetary tightening with fiscal discipline. Structural deficiencies should be addressed so that food inflation, which is substantially caused by insecurity and infrastructure gaps, is tackled.

The success or otherwise of the inflation‑targeting technique sits with communication. As such, the CBN must constantly explain to the citizenry the movements in rates and how they protect the poor. The ultimate goal should not be inflation targeting for its own sake, but sustainable price stability that protects purchasing power, encourages investment and supports inclusive growth. Achieving this requires moving beyond textbook models to a homegrown framework that recognises Nigeria’s unique structural dynamics. Only then will “targeting inflation” translate to real relief for households and businesses across the country.

In conclusion, Nigeria’s adoption of inflation targeting should be viewed as a cautious beginning, not a silver bullet. Inflation targeting remains a work in progress rather than a settled policy success. While the CBN’s shift toward a more explicit inflation‑targeting framework has improved policy transparency and anchored expectations to some degree, structural bottlenecks continue to limit its effectiveness.

However, by placing price stability at the core of the CBN’s mandate, ending fiscal dominance through Ways and Means, and embracing transparency via explicit targets and forward guidance, the country has laid the institutional groundwork that has been elusive for decades.

Ummie Kabir is with Apex Media Services