Deconstructing Nigeria's Inflation: A Sectoral Analysis Beyond the Headline Numbers

While Nigeria's headline inflation appears to be moderating, declining from 24.23% in March 2025 to 21.88% in July 2025, this statistical improvement offers limited relief to households and businesses facing persistently elevated prices. The apparent decline partly reflects technical factors including base effects and a comprehensive rebasing of the Consumer Price Index (CPI) in January 2025, which updated the basket weights to better reflect contemporary consumption patterns. A closer examination of the CPI components reveals significant divergent trends across sectors, with food, housing, education, and transportation continuing to drive inflationary pressures through distinct mechanisms. This analysis delves beyond the headline figure to uncover the complex dynamics shaping Nigeria's cost-of-living crisis.

Food Inflation: The Primary Driver with Regional Disparities

Food and non-alcoholic beverages constitute the largest weight in Nigeria's CPI basket at approximately 52%, making this category the most significant contributor to overall inflation. Although yearly food inflation showed a technical decline to 22.74% in July 2025 from much higher levels in 2024, month-on-month measurements reveal persistent acceleration, increasing to 3.25% in June from 2.19% in May. This indicates that food prices continue to rise at a concerning pace despite the statistical moderation in annual comparisons.

The underlying drivers are multifaceted. Supply chain disruptions caused by ongoing insecurity in agricultural regions significantly constrain domestic food production. States like Benue, traditionally considered Nigeria's "food basket," recorded alarming food inflation rates of 51.76% year-on-year in April 2025, directly linked to security challenges that disrupt farming activities. Logistics costs remain elevated due to high transportation expenses and energy costs, themselves driven by the removal of fuel subsidies and currency depreciation. Policy interventions such as the removal of tariffs on imported cereals provided only temporary relief while simultaneously creating disincentives for local farmers who struggle to compete with cheaper imports.

The dramatic regional variations in food inflation highlight how geographic factors and localized security conditions create sharply different consumption experiences across the country, with rural areas often suffering more severe price effects despite typically having lower overall inflation rates.

Core Inflation: Housing, Utilities, and Transportation Pressures

Core inflation, which excludes volatile agricultural produce and energy prices, declined to 21.30% in July 2025 from 22.76% in June. However, this aggregate figure masks critical sectoral dynamics that continue to pressure household budgets.

Housing, water, electricity, gas, and other fuels (approximately 17% of the CPI basket) remain significant inflation drivers, contributing 2.0% to the yearly headline figure as of April 2025. The energy cost surge following subsidy removal continues to cascade through virtually every sector of the economy. Transportation (7% of the basket) contributed 2.53% to year-on-year inflation in April 2025. This category directly reflects fuel price dynamics and vehicle maintenance costs, both highly sensitive to currency valuation as Nigeria imports refined petroleum and vehicles.

Urban inflation consistently outpaces rural measurements (24.29% vs. 22.83% year-on-year in April 2025), reflecting concentrated demand pressures and higher costs for services and housing in cities. The urban-rural divide underscores how inflation disproportionately affects those in metropolitan areas where cash-based economies dominate and alternatives like subsistence farming are unavailable.

Nigeria's inflation landscape reveals deep structural challenges that cannot be resolved through monetary policy alone. While the Central Bank of Nigeria's tight monetary stance has contributed to moderating headline inflation expectations, the persistent monthly increase across critical categories indicate that supply-side constraints and sector-specific vulnerabilities continue to drive the cost-of-living crisis.

The path to sustainable price stability requires targeted interventions: agricultural security and investment to address the primary drivers of food inflation, energy sector reforms to reduce transportation and utilities costs, infrastructure development to ease logistics constraints, and exchange rate management to reduce import-dependent inflation.