Market News

By Sami Tunji

The Central Bank of Nigeria has reported that the majority of Nigerian firms identify high energy costs, particularly fuel, diesel, and electricity, as the leading cause of inflation in the country.

This was disclosed in its May 2025 Inflation Expectation Survey, which highlights worsening concerns about the cost environment for businesses across the country. According to the report, 90.8 per cent of respondent firms ranked energy costs as the top factor contributing to inflation.

This includes expenses on Premium Motor Spirit (petrol), diesel, and electricity, reflecting how energy supply and pricing remain a core structural challenge in Nigeria’s inflation battle.

The result affirmed that despite the CBN’s tight monetary policy with the Monetary Policy Rate currently at 27.5 per cent, inflation is still being driven predominantly by supply-side pressures, which interest rate tools alone may not effectively resolve.

The report also noted that 88.5 per cent of firms cited the exchange rate as the second most significant factor influencing inflation, reflecting concerns about currency volatility and the cost of imported goods.

This was followed by 87.2 per cent of firms who identified transportation costs, including road, flight, water, and rail logistics, as the third-highest driver. Interest rates came in fourth, with 85.5 per cent of firms believing it is a major contributor to inflationary pressure.

This suggests that while the CBN’s monetary tightening was intended to rein in inflation, it may have added to cost pressures for businesses, especially those reliant on credit for operations or expansion.

Other notable drivers included insecurity (84.7 per cent), raw material input costs (78.3 per cent), and infrastructural challenges (75.0 per cent). The activities of middlemen and natural disasters were also acknowledged by 73.0 and 63.4 per cent of firms, respectively, though they ranked lower in terms of perceived impact.

Among households, transportation ranked just behind energy as the second-most influential inflationary pressure at 85.0 per cent, followed by the exchange rate (82.0 per cent), insecurity (80.0 per cent), and interest rates (78.7 per cent).

The CBN noted that both businesses and households consistently identified energy, exchange rate, and transportation as the top three inflation drivers. The CBN report read, “Respondents (Businesses and Households) identified energy, exchange rate, and transportation as the top three inflation drivers.

“However, natural disasters, activities of middlemen, and infrastructural challenges were perceived as less significant contributors to inflation drivers in the review period.”

In May 2025, 75.3 per cent of all respondents believed the current inflation rate was high, compared to 70.0 per cent in April. Among households, the figure surged to 79.6 per cent, up from 69.4 per cent in the previous month, while 71.5 per cent of businesses also described inflation as high, compared to 70.5 per cent in April.

Perceptions of moderate and low inflation declined across the board, reinforcing concerns over rising living costs. A closer look at business sizes revealed that 78.2 per cent of large firms reported high inflation, followed by 72.8 per cent of micro enterprises and 70.6 per cent of medium-sized firms.

Among households, those earning between N30,001 and N100,000 per month recorded the highest inflation perception at 82.9 per cent, while those earning above N200,000 had the lowest at 65.7 per cent.

Urban and rural households were nearly aligned in their views, with 79.8 and 79.3 per cent, respectively, describing the inflation rate as high. The outlook for June remains cautious. About 43.1 per cent of households and 29.7 per cent of businesses expect inflation to rise in the coming month.

On the expenditure side, 75.1 per cent of businesses and 67.1 per cent of households expect their spending to increase. Meanwhile, a significant majority of respondents want policy easing, with 68.9 per cent preferring a reduction in interest rates, compared to just 10.9 per cent who support further hikes and 20.2 per cent who favour holding rates steady.

According to the National Bureau of Statistics, Nigeria’s inflation rate eased to 23.71 per cent in April 2025, down from 24.23 per cent in March, marking a decline of 0.52 percentage points.

While this signals marginal relief, the CBN report reinforces the argument that the country’s inflation crisis is not driven solely by excess demand or monetary expansion, but rather by persistent structural bottlenecks.

With both firms and households ranking energy, transport, and exchange rate volatility as the top contributors, the data point strongly to cost-push factors at the heart of Nigeria’s inflationary trend.

Sami Tunji