…Lower food prices slow headline inflation to 18.02%
Markets are positioning for a bolder interest rate cut in November after headline inflation dipped to 18.02 percent in September, driven by lower food prices.
The inflation figure for September is the lowest level recorded in three years, strengthening expectations that the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (MPC) could deliver a more aggressive rate reduction at its next meeting.
The inflation figure was lower than the 19 percent projected by many analysts.
Food inflation, often a significant driver of overall inflation, saw a big drop from 21.87 percent to 16.87 percent in September. Core inflation, a measure of inflation that excludes volatile or temporary price elements, primarily food and energy prices, also moderated.
Last month, the MPC cut Nigeria’s benchmark interest rate for the first time in five years by 50 basis points to 27 percent from 27.50 percent.
Olayemi Cardoso, CBN governor, said after the MPC decision that the rate cut was anchored by both recent data and forward-looking projections.
“The MPC’s decision to lower the monetary policy rate was predicated on the sustained disinflation recorded in the past five months, projections of declining inflation for the rest of 2025, and the need to support economic recovery efforts,” he said during the post-MPC press briefing.
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According to him, CBN staff had projected a continued decline in inflation over the coming months, driven by the lagged impact of previous rate hikes, the continued stability of the exchange rate, a drop in premium motor spirit (PMS) prices, and the expected seasonal drop in food prices as the harvest season progressed.
Food inflation impact
As expected, the decline was largely driven by drops in food prices as food inflation month-on-month (MoM) fell by 1.6 percent, reflecting improved food supply from the ongoing harvest.
Interestingly, such a drop in MoM food inflation in September is typical in recent years but was relatively common between 1996 and 2005, a period marked by greater food security. However, the magnitude of the current MoM decline stands out, as it is larger than the historical average of 0.65 percent observed during those earlier periods
Ajoke Oladejo, a trader at Ketu market in Lagos, noted that “food prices were relatively stable last month.”
She said the price of a 50kg bag of rice dropped to N75,000 from N80,000 last month, noting that it was a marginal drop.
Another trader said she noticed decreases in the prices of grains in September.
Rate cut expectation
Analysts at CardinalStone said in a recent report that declining inflation could bode for a 100-basis-point reduction in interest rate by year’s end.
“The softer inflation outlook reinforces the case for additional monetary easing by the CBN at its November policy meeting. We expect a 100bps reduction in MPR to 26.0 percent,” Cardinalstone Project analysts said in a note.
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The investment firm sees room for further moderation in inflation next month, noting that the drivers that were obtainable in September 2025 are likely to persist.
Also, the convergence between Open Market Operations (OMO) bills and Nigerian Treasury Bills (NTBs) signals a further interest rate cut ahead.
In September, yields across the short-term instruments continued to moderate, with OMO yields falling faster than NTB yields. The spread between one-year tenors of both instruments has compressed to 300 basis points from 650 basis points over the past five months.
As of October 2025, yields on the 364-day OMO and NT-bills remain 21.8 percent and 18.7 percent, respectively
“With the drop in inflation seen today, robust liquidity will lead to investors pricing it in, and yields on these instruments are likely to decline further. We will likely see a 100-basis-point reduction,” said Matilda Adefalujo, fixed-income analyst at Meristem.
Bismarck Rewane, managing director of Financial Derivatives Company, projected in his monthly report that the MPC would most likely cut the MPR by 25 basis points to 26.75 percent in the next meeting.
Ike Ibeabuchi, an Abuja-based emerging markets analyst, projects a 100-basis-point cut in November. He noted that funds may gradually begin to move from fixed income to stocks and other more attractive instruments as investors price in lower returns.