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Why Nigeria's inflation defied conventional economics

This case study explores why monetary policy has been ineffective in curbing inflation in Nigeria, drawing attention to structural weaknesses that conventional models often overlook.

Written by Vincent Banjo
Edited by Bilal Malik
9 min read

In the past few years, Nigeria’s inflation crisis has been a contradiction to traditional economic theory, as despite aggressive interest rate hikes, inflation remained stubbornly high, unlike in other countries such as France, where similar measures were followed by disinflation. To examine the core root of this issue, we must look beyond monetary policy and examine Nigeria’s structural economic weaknesses.

In economic theory, raising interest rates should help stem inflation. This is because, according to conventional theory, an interest rate hike should result in higher borrowing rates, which would reduce the willingness of firms and households to finance their investment or consumption through increased debt. As spending falls, aggregate demand (AD) declines, easing upward pressure on prices, thereby lowering inflation.

However, in Nigeria, this transmission mechanism had not worked as expected, with inflation remaining above 30% on the old CPI base from February to December 2024 despite successive rate hikes, as shown in the chart below (NBS, 2025).

Inflation stayed high during the tightening of 2024

Annual CPI inflation and the month end policy rate to September 2026, when inflation was 14.63% and the rate 23%. The CPI was rebased in January 2025, so the two CPI lines are not comparable. January 2025 is the revised 27.61%; the first release was 24.48%.

%

  • Old CPI
  • New CPI
  • MPR
Inflation stayed high during the tightening of 2024010203040Old CPIOld CPI 34.8New CPINew CPI 14.6MPRMPR 232020202220242026

Source: NBS CPI workbooks and CBN policy decisions, rounded by LUECR · As of 15 October 2026

Show the numbers
DateOld CPI (%)New CPI (%)MPR (%)
Jan 202012.13—13.5
Feb 202012.2—13.5
Mar 202012.26—13.5
Apr 202012.34—13.5
May 202012.4—12.5
Jun 202012.56—12.5
Jul 202012.82—12.5
Aug 202013.22—12.5
Sep 202013.71—11.5
Oct 202014.23—11.5
Nov 202014.89—11.5
Dec 202015.75—11.5
Jan 202116.47—11.5
Feb 202117.33—11.5
Mar 202118.17—11.5
Apr 202118.12—11.5
May 202117.93—11.5
Jun 202117.75—11.5
Jul 202117.38—11.5
Aug 202117.01—11.5
Sep 202116.63—11.5
Oct 202115.99—11.5
Nov 202115.4—11.5
Dec 202115.63—11.5
Jan 202215.6—11.5
Feb 202215.7—11.5
Mar 202215.92—11.5
Apr 202216.82—11.5
May 202217.71—13
Jun 202218.6—13
Jul 202219.64—14
Aug 202220.52—14
Sep 202220.77—15.5
Oct 202221.09—15.5
Nov 202221.47—16.5
Dec 202221.34—16.5
Jan 202321.82—17.5
Feb 202321.91—17.5
Mar 202322.04—18
Apr 202322.22—18
May 202322.41—18.5
Jun 202322.79—18.5
Jul 202324.08—18.75
Aug 202325.8—18.75
Sep 202326.72—18.75
Oct 202327.33—18.75
Nov 202328.2—18.75
Dec 202328.92—18.75
Jan 202429.9—18.75
Feb 202431.7—22.75
Mar 202433.2—24.75
Apr 202433.69—24.75
May 202433.95—26.25
Jun 202434.19—26.25
Jul 202433.4—26.75
Aug 202432.15—26.75
Sep 202432.7—27.25
Oct 202433.88—27.25
Nov 202434.6—27.5
Dec 202434.8—27.5
Jan 2025—27.6127.5
Feb 2025—26.2727.5
Mar 2025—27.3527.5
Apr 2025—26.8227.5
May 2025—26.0627.5
Jun 2025—25.2927.5
Jul 2025—24.9427.5
Aug 2025—23.1427.5
Sep 2025—20.9827
Oct 2025—18.9727
Nov 2025—17.3327
Dec 2025—15.1527
Jan 2026—15.127
Feb 2026—15.0626.5
Mar 2026—15.3826.5
Apr 2026—15.6926.5
May 2026—15.9326.5
Jun 2026—15.9126.5
Jul 2026—15.4326.5
Aug 2026—15.3926.5
Sep 2026—14.6323

And yet this does not seem to be the case for other countries. As shown in the following chart, the ECB’s hiking of lending rates was followed by lower French inflation rates through 2025, consistent with the economic theory mentioned earlier, even if one considers time lags (Eurostat, 2026; ECB, 2026).

French inflation fell after its 2023 peak

France HICP annual inflation and the month end ECB deposit rate. French inflation rose again in 2026, to an estimated 3.8% in October.

%

  • HICP
  • ECB
French inflation fell after its 2023 peak-202468HICPHICP 3.8ECBECB 2.52020202220242026

Source: Eurostat HICP and ECB key interest rates · As of 4 November 2026

Show the numbers
DateHICP (%)ECB (%)
Jan 20201.7-0.5
Feb 20201.6-0.5
Mar 20200.8-0.5
Apr 20200.4-0.5
May 20200.4-0.5
Jun 20200.2-0.5
Jul 20200.8-0.5
Aug 20200.2-0.5
Sep 20200-0.5
Oct 20200.1-0.5
Nov 20200.2-0.5
Dec 20200-0.5
Jan 20210.8-0.5
Feb 20210.8-0.5
Mar 20211.4-0.5
Apr 20211.6-0.5
May 20211.8-0.5
Jun 20211.9-0.5
Jul 20211.5-0.5
Aug 20212.4-0.5
Sep 20212.7-0.5
Oct 20213.2-0.5
Nov 20213.4-0.5
Dec 20213.4-0.5
Jan 20223.3-0.5
Feb 20224.2-0.5
Mar 20225.1-0.5
Apr 20225.4-0.5
May 20225.8-0.5
Jun 20226.5-0.5
Jul 20226.80
Aug 20226.60
Sep 20226.20.75
Oct 20227.10.75
Nov 20227.11.5
Dec 20226.72
Jan 202372
Feb 20237.32.5
Mar 20236.73
Apr 20236.93
May 202363.25
Jun 20235.33.5
Jul 20235.13.5
Aug 20235.73.75
Sep 20235.74
Oct 20234.54
Nov 20233.94
Dec 20234.14
Jan 20243.44
Feb 20243.24
Mar 20242.44
Apr 20242.44
May 20242.64
Jun 20242.53.75
Jul 20242.73.75
Aug 20242.23.75
Sep 20241.43.5
Oct 20241.63.25
Nov 20241.73.25
Dec 20241.83
Jan 20251.83
Feb 20250.92.75
Mar 20250.92.5
Apr 20250.92.25
May 20250.62.25
Jun 20250.92
Jul 20250.92
Aug 20250.82
Sep 20251.12
Oct 20250.82
Nov 20250.82
Dec 20250.72
Jan 20260.42
Feb 20261.12
Mar 202622
Apr 20262.52
May 20262.82
Jun 202622.25
Jul 20262.42.25
Aug 20262.62.25
Sep 20263.42.5
Oct 20263.82.5

This raises the question: Why did inflation remain persistent in Nigeria despite rate hikes?

Oil subsidy removal

Not long after Tinubu’s ascension to the presidency, he implemented his plan to remove petrol subsidies in 2023. This policy triggered widespread economic disruption, as fuel retailers increased prices, transferring a greater share of the burden onto consumers, thereby increasing the cost of fuelling vehicles in a nation that lacks an efficient public transportation system. This was compounded by rising production costs, as firms raised prices to protect profit margins, thereby fuelling cost-push inflation. Higher oil prices pushed up food costs, which made up nearly 52% of Nigeria’s consumer price basket in December 2024, according to the National Bureau of Statistics (NBS). However, it would be unfair to blame food inflation solely on Tinubu’s subsidy removal, as other factors undoubtedly played a massive role as well.

Food inflation still exceeded headline inflation in September

Annual inflation on the new CPI base to September 2026, when food inflation was 19.59% and headline inflation 14.63%.

%

  • Food
  • Headline
Food inflation still exceeded headline inflation in September0102030FoodFood 19.6HeadlineHeadline 14.6Jan 2025Aug 2025Feb 2026Sep 2026

Source: NBS, September 2026 CPI workbook, rounded by LUECR · As of 15 October 2026

Show the numbers
DateFood (%)Headline (%)
Jan 202529.6327.61
Feb 202526.9826.27
Mar 202525.2227.35
Apr 202524.6826.82
May 202524.5526.06
Jun 202525.4125.29
Jul 202526.224.94
Aug 202525.323.14
Sep 202520.1620.98
Oct 202516.318.97
Nov 202514.2117.33
Dec 202510.8415.15
Jan 20268.8915.1
Feb 202612.1215.06
Mar 202614.3115.38
Apr 202616.0615.69
May 202616.9615.93
Jun 202617.5215.91
Jul 202620.3115.43
Aug 202619.5715.39
Sep 202619.5914.63

Insecurity

Rampant insecurity forced many Nigerians to flee their homes and land to avoid becoming casualties of ongoing violence. Insecurity deterred many farmers from returning to their land, as ongoing violence threatened their safety. This created a supply-driven food shortage as farms were abandoned or burnt. This leads to supply bottlenecks, which reduce aggregate supply (AS) in a growing nation. Ultimately resulting in greater food prices and inflation.

Currency depreciation

In June 2023, Tinubu’s administration liberalised the exchange rate regime, allowing the naira’s value to be determined by market forces. This resulted in the naira losing more than two-thirds of its value, depreciating from ₦461 per USD to ₦1,586 per USD by May 2025 (CBN, 2026).

The naira lost more than two thirds of its value by May 2025

Official CBN central rate at each month end, to October 2026. More naira per dollar means a weaker naira. The rate was 1,346 on 6 November 2026.

naira per US dollar

The naira lost more than two thirds of its value by May 20250500100015002000Naira13462020202220242026

Source: Central Bank of Nigeria, exchange rates by currency, rounded by LUECR · As of 6 November 2026

Show the numbers
DateNaira (naira per US dollar)
Jan 2020306
Feb 2020306
Mar 2020360
Apr 2020360
May 2020360
Jun 2020360
Jul 2020360
Aug 2020380
Sep 2020380
Oct 2020380
Nov 2020380
Dec 2020380
Jan 2021380
Feb 2021380
Mar 2021380
Apr 2021380
May 2021410
Jun 2021410
Jul 2021410
Aug 2021410
Sep 2021410
Oct 2021411
Nov 2021411
Dec 2021413
Jan 2022415
Feb 2022416
Mar 2022416
Apr 2022415
May 2022415
Jun 2022415
Jul 2022416
Aug 2022423
Sep 2022432
Oct 2022439
Nov 2022444
Dec 2022449
Jan 2023461
Feb 2023460
Mar 2023460
Apr 2023460
May 2023461
Jun 2023770
Jul 2023758
Aug 2023757
Sep 2023769
Oct 2023825
Nov 2023942
Dec 2023899
Jan 20241357
Feb 20241544
Mar 20241330
Apr 20241330
May 20241483
Jun 20241470
Jul 20241611
Aug 20241596
Sep 20241601
Oct 20241670
Nov 20241663
Dec 20241535
Jan 20251478
Feb 20251492
Mar 20251536
Apr 20251596
May 20251586
Jun 20251529
Jul 20251533
Aug 20251531
Sep 20251475
Oct 20251421
Nov 20251446
Dec 20251435
Jan 20261386
Feb 20261363
Mar 20261386
Apr 20261374
May 20261373
Jun 20261379
Jul 20261368
Aug 20261332
Sep 20261329
Oct 20261346

In theory, currency depreciation should increase international competitiveness by making exports cheaper, boosting net exports, and supporting GDP growth, with only a modest rise in inflation through exchange rate pass-through.

Nigeria’s reality, however, breaks this pattern. As of February 2025, local refineries supplied less than 50% of the total daily supply (Nairametrics, 2025), indicating a significant reliance on imports. Combined with the sudden removal of subsidies and exchange rate liberalisation, the foreign dependency exposed many Nigerians to fuel supply shocks and price volatility. As a result, depreciation primarily raised import costs, raising firms’ production costs. These were then passed on to consumers, amplifying inflation through high exchange rate pass-through and driving cost-push inflation across the economy.

Power grid weaknesses

So far, we have discussed the effect of oil prices on inflation, but we have yet to address why Nigerian households and firms are especially vulnerable to those inflationary pressures.

This is because standard economic models often overlook structural weaknesses. Monetary policy fails to address these structural issues, which cannot be sorted by simply changing interest rates. This is made clear in Our World in Data (2026), in which Nigeria produced approximately 175 kWh of electricity per person in 2025, which is far less than Brazil’s production of 3,527 kWh.

Nigeria generated far less electricity per person than Brazil

Electricity generated per person in 2025, not consumption or reliability.

kWh per person

Nigeria generated far less electricity per person than BrazilUnited Kingdom: 4,203 kWh per personUnited Kingdom: 4,203 kWh per personSouth Africa: 3,749 kWh per personSouth Africa: 3,749 kWh per personBrazil: 3,527 kWh per personBrazil: 3,527 kWh per personIndia: 1,422 kWh per personIndia: 1,422 kWh per personKenya: 244 kWh per personKenya: 244 kWh per personNigeria: 175 kWh per personNigeria: 175 kWh per person010002000300040005000

Source: Our World in Data, Ember and other sources, CC BY 4.0, rounded by LUECR · As of 30 June 2026

Show the numbers
ItemGeneration (kWh per person)
United Kingdom4203
South Africa3749
Brazil3527
India1422
Kenya244
Nigeria175

This data highlights a significant weakness in Nigeria’s energy infrastructure when compared to more economically advanced countries. This lack of reliability on the electricity grid has resulted in Nigerian households facing an average of 6.7 power outages per week, with each outage lasting 12 hours, according to NBS/World Bank General Household Survey Panel (Wave 5) data (NBS, 2024).

As a result, firms and consumers have to rely heavily on diesel generators to avoid blackouts and production lapses. This raises costs, reduces profits, and limits investment in long-term productivity, resulting in less dynamic efficiency.

Why interest rates fail in Nigeria?

In Nigeria, do higher interest rates reduce inflation, or exacerbate it? In the context of Nigeria, we must examine what interest rates mean from an entrepreneur’s perspective, the cost of borrowing. In a country where much of the population lives in poverty, higher lending rates make it harder for entrepreneurs to operate effectively.

Rate hikes are particularly damaging in this context, as they restrict affordable finance for entrepreneurs, creating supply constraints that drive further inflation.

With all this considered, why was it that the CBN kept on hiking lending rates despite the monetary policy not seeming to stabilise inflation in that period? An important reason for this was the naira’s floating, as the central bank was compelled to act swiftly to maintain investor confidence in the naira, which had just begun a free fall. This move to stabilise the currency could help reduce cost-push inflation by avoiding even greater exchange-rate pass-through, which was a potential concern for the CBN in its long-term thinking.

Another reason is the time lags involved with supply-side policies, as they often take a while to even be completed, and even longer for their benefits to be seen. An example of this would be Dangote Refinery, which, from its site excavation in 2016 to initial production in January 2024, spanned about 7 to 8 years. Such policies are less effective in contexts of urgent macroeconomic shocks, since their benefits only emerge in the long run.

Nigeria’s experience suggests that interest rate hikes alone may not resolve inflation unless deep structural weaknesses are addressed. Without reforms in energy, food security, and currency stability, monetary policy will continue to address symptoms rather than causes.

Revisiting this subject in September 2025

Nigeria recorded five consecutive months of disinflation, driven by lower prices of key food staples such as imported and local rice, along with a change in the base year. This is according to the National Bureau of Statistics, NBS, August Consumer Price Index and inflation rate data.

In conclusion, policies and investments that enable domestic production rather than just protecting it are necessary for the long-term development of an emerging economy with a weak currency. This is because a reduced overreliance on foreign necessities may help reduce susceptibility to currency volatility-caused inflation. This could also give policy makers more room to cut interest rates, as seen in September 2025, without relying on high rates to prevent capital flight (CBN, 2025).

If monetary policy is limited, what else is needed?

Now that we have investigated some of the numerous issues behind Nigeria’s inflation crisis, it is time to consider some solutions. The first solution I would provide as a fiscal policy priority is increased investment in security, as the prominent banditry and terrorism are an undoubted destabilising factor that has crippled productivity and tax revenue towards the government. It has also limited food production, with data showing that at least 1,356 farmers lost their lives between 2020 and 2024 (Nairametrics, 2024). This is why, to help stabilise inflation, greater investment in security is essential.

Another necessary structural reform would be a more effective electricity grid, as aforementioned, the lack of consistent access to electricity and power makes it harder to preserve food and increases the overall demand for diesel to power generators. Therefore, a more consistent electricity grid, even if not 24/7, can help alleviate some of the costs faced by various entities and potentially increase the likelihood of dynamic efficiency among farmers, which may boost agricultural productivity and help bring down food inflation.

References

Central Bank of Nigeria (CBN) (2025). Monetary Policy Communique 159, pages 1 to 4. Decision of 23 September.

Central Bank of Nigeria (CBN) (2026). Exchange rates by currency, US dollar central rate. Rates.

European Central Bank (ECB) (2026). Key ECB interest rates, deposit facility, effective dates. Rate history.

Eurostat (2026). HICP monthly indices and rates, France, total, annual rate, dataset prc_hicp_minr. Updated 4 November. Data.

Nairametrics (2024). Food insecurity: Over 1,356 farmers killed in Nigeria since 2020, reporting SBM Intelligence, 7 August. Article.

Nairametrics (2025). Local refineries contribute less than 50 percent of Nigeria’s daily petrol consumption, reporting NMDPRA, 21 February. Article.

National Bureau of Statistics (NBS) (2024). General Household Survey Panel Wave 5, 2023/2024, pages 28 and 29. Survey report.

National Bureau of Statistics (NBS) (2025). December 2024 Consumer Price Index, page 7 and accompanying workbook, Tables 1 and 2. Report. Workbook.

Our World in Data (2026). Electricity generation per person, Ember and other sources, 2025 observations. CC BY 4.0. Chart and methodology.

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