Q1 & Q2 high inflation impacts Nigerian businesses and households

By: Tobi Adeojo

The period from January to June 2025 was marked by significant inflationary pressures in Nigeria, with year-on-year (YoY) rates consistently above 22%. While the initial months showed a downward trend in headline inflation, core inflation remained persistent, suggesting deeply entrenched price drivers.

This challenging economic environment has had a profound impact on individuals and businesses, affecting purchasing power, operational costs, and investment strategies. data indicates that while there are early signs of moderation, sustained policy action is necessary to achieve a more stable and low-inflationary environment. 

However, the current third quarter has shown a steady decline so far, with July and August recording 21.88% and 20.12% respectively, according to latest data from National Bureau of Statistics (NBS).

Macroeconomic Trends and Key Metrics

Headline inflation (All Items YoY) saw a notable decrease from a peak of 24.48% in January to 22.22% by June, according to (NBS). This decline is a positive indicator that some price pressures may be easing, offering a glimmer of hope for a more stable economic outlook.

However, it is crucial to note that this rate remains significantly above the Central Bank of Nigeria’s (CBN) target of 2-3%. The average all-items YoY inflation for this period stood at approximately 23.46%, a figure characteristic of severe inflation scenarios in emerging markets. 

Food inflation, a critical component of the overall inflation index, exhibited considerable volatility. It peaked at 26.08% in January but showed a general decline to 21.14% in May, before experiencing a slight increase in June. This fluctuation is likely tied to disruptions in supply chains and shifts in commodity markets. 

Core inflation, which excludes volatile food and energy items, proved to be more stubborn, remaining above 22% throughout the period and peaking at 24.50% in April.

The persistence of high core inflation points to underlying factors such as wage pressures and the rising cost of imported goods, suggesting that the inflationary problem is not merely a result of external shocks but also has deep domestic roots.

Impact on Individuals and Households

The high inflation rates have significantly eroded the financial stability of individuals. With a 23% YoY inflation rate, the purchasing power of the national currency has been severely diminished; a basket of goods that cost #1,000 in January 2024 would cost approximately #1,230 a year later.

With average food inflation rate of 22.46% has placed a considerable strain on household budgets, as groceries constitute a major part of disposable income. In response, families may have had to resort to cheaper alternatives, which could have implications for nutrition. 

High inflation has also had a negative impact on savings and investments. A savings account offering a 5% return would yield a negative real return when faced with a 23% inflation rate, effectively discouraging saving.

This has pushed Nigerians towards riskier investment options in an attempt to preserve wealth, complicating long-term financial planning. Other essential services, such as healthcare and education, have also seen rising costs, limiting access for some families and potentially increasing student debt. 

Impact on Businesses

Businesses have also faced a challenging operational environment. Rising costs for raw materials and labor have put pressure on production. For instance, supplies in the food sector have seen increases of 21-26% according to NBS. In response, businesses have been forced to re-evaluate their sourcing and production strategies, with some exploring diversification of supply chains to enhance resilience. 

Adjusting pricing to balance cost pressures with customer loyalty has become a critical challenge for businesses.

During the Q1&Q2 period Small businesses were  focused on innovative marketing and efficiency to navigate these market conditions.

The inflation data for early 2025 paints a clear picture of a complex and challenging economic climate. While the headline inflation rate shows a promising downward trend, the persistent nature of core inflation suggests that underlying issues are still at play.

This downward trend notable in the third quarter, if sustained, could gradually increase the purchasing power of citizens and businesses. Businesses and individuals must remain strategic in their financial planning and operations to mitigate the ongoing effects of high inflation.