Drop In January Inflation Fuels Expectations Of CBN Monetary Easing

Nigeria’s softer inflation print for January has strengthened expectations of an imminent interest rate cut, with market analysts and economic policy experts describing the latest data as a clear signal of improving macroeconomic stability.

Senior Market Analyst at FXTM, Lukman Otunuga in a chat with THE WHISTLER said the unexpected slowdown in inflation to 15.10 percent year-on-year provides strong justification for monetary easing by the Central Bank of Nigeria.

According to him, the moderation, down from 15.15 per cent in December and significantly lower than market projections reflects easing price pressures, particularly from food, and strengthens the case for lower borrowing costs.

Otunuga noted that with the naira appreciating by about eight percent against the dollar year-to-date and inflation trending lower, “the question is not if but how much” the apex bank will reduce rates at its next policy meeting.

He added that a rate cut could further stimulate economic activity, improve credit conditions and bolster investor sentiment, provided inflation remains contained.

Similarly, Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, described the January Consumer Price Index (CPI) outcome as evidence of “real disinflation” rather than temporary price volatility.

Yusuf emphasised that the broad-based moderation across food and core components signals a meaningful macroeconomic transition.

Headline inflation fell sharply to 15.10 percent year-on-year in January 2026 from 27.61 per cent in January 2025. On a month-on-month basis, inflation contracted by 2.88 per cent, indicating an actual reduction in the general price level relative to December.

Food inflation, which has historically exerted the greatest pressure on Nigerian households, dropped to 8.89 per cent year-on-year from 29.63 per cent a year earlier and 10.84 per cent in December.

On a monthly basis, food prices declined by 6.02 per cent, largely due to falling staple prices. Core inflation also moderated to 17.72 per cent from 18.63 percent in December, suggesting that easing price pressures are extending beyond food.

Urban inflation slowed to 15.36 per cent while rural inflation eased to 14.44 per cent, underscoring the widespread nature of the disinflation trend.

Yusuf stressed that the sharp moderation in food prices carries significant welfare benefits, given that food constitutes the largest share of household spending in Nigeria.

Lower food costs, he noted, are expected to improve real purchasing power, reduce food-security pressures and support a gradual recovery in demand for non-food goods and services.

However, he cautioned that declining food prices may also pose risks to farm incomes and rural livelihoods. Sustained weakness in farm-gate prices could compress farmers’ revenues, weaken rural purchasing power and discourage agricultural production, potentially setting the stage for future supply shortages and renewed inflationary pressures.

To safeguard long-term stability, CPPE called for targeted government interventions aimed at balancing consumer affordability with producer sustainability.

These include productivity-enhancing measures, minimum guaranteed prices for selected crops, strategic food reserves and expanded agro-processing capacity to absorb surplus output.

For investors and businesses, the inflation moderation signals a shift in economic conditions. While easing price pressures improve the outlook for consumer demand and corporate planning, companies may face tighter margins as the ability to rely on price increases for revenue growth diminishes.

Analysts say this will heighten the importance of cost efficiency, scale and productivity improvements.

Beyond domestic considerations, global market developments remain in focus. Investors are monitoring geopolitical tensions, including US-Iran talks, as well as key US economic indicators such as the Federal Reserve minutes, Personal Consumption Expenditures inflation data and fourth-quarter GDP figures.

These external factors could influence capital flows, exchange rate dynamics and commodity prices, with implications for Nigeria’s policy environment.

Nonetheless, the January CPI outcome marks a significant milestone in Nigeria’s economic adjustment process.

If sustained, the disinflation trend could pave the way for a carefully calibrated monetary easing cycle, reinforce investor confidence and consolidate the country’s progress toward macroeconomic stabilisation.

January’s inflation outcome represents a meaningful milestone in Nigeria’s economic adjustment process. While the moderation strengthens the case for cautious monetary easing and boosts household welfare, sustaining the gains will require careful policy coordination to protect agricultural productivity, address structural bottlenecks and maintain investor confidence amid an uncertain global backdrop.