Imagine this: You wake up on a Monday morning and hear that inflation, the force behind some of the fastest price increases of your adult life, has finally dropped to 15%. Overjoyed, you head to the market. Finally, you think to yourself, the price of your everyday items should start to make sense again!
But you are met with a rude shock. The price of eggs is still painfully high. So is the price of rice, beans, and cooking oil, too.
Except you’re not imagining this. This is real life.
In September 2025, the Nigerian Central Bank announced that inflation had fallen to 18.02%, down from a record high 34.80% in December 2024. Over the following months, the rate continued to decline, reaching around 15% by December 2025.
Good news, right?
Not exactly. For Nigerians like you and me, there’s been little to no difference. Prices of items have remained stubbornly and frustratingly high.
So, if inflation rates are falling, why is everything still so expensive?
Inflation and what it actually measures
Inflation measures the rate at which prices for goods and services increase over time, which directly affects your purchasing power, especially if your salary cannot keep up the pace. The government tracks the prices of goods and services using something called the Consumer Price Index, or CPI. (Remember this, it will be relevant later). So when we say inflation has dropped from 34.80% to 15%, we’re not saying the prices of goods have or will come down. We are saying that they are still rising, just not as quickly as they did before.
Think of CPI as the speedometer of our economy. It tells you how high prices are right now. Inflation, then, is the acceleration: how fast that speedometer needle is climbing. If your speed jumps from 50 km/h to 120 km/h, this rapid acceleration is like high inflation. But if, in the next minute, your speed only increases from 120 km/h to 130 km/h, you’re still moving faster, just more slowly than before.
This distinction is critical for understanding our current reality.
When we say inflation has dropped from 34.80% to 15.06%, we aren’t saying the speedometer has returned to zero; we are saying the needle is simply moving forward at a slower pace.
We can see this clearly in the cost of petrol. After the fuel subsidy removal in 2023, prices jumped from ₦200 to roughly ₦500—a staggering burst of acceleration. By 2024, as the CPI (the speedometer) continued to climb, petrol reached ₦1,100–₦1,250.
Today, even though the rate of inflation has slowed to 15.06%, the price of petrol hasn’t dropped back to ₦500. Instead, it has crept up to roughly ₦1,300. The “car” is still moving forward, but not at the same rate as before. Prices will only move backward if we experience deflation—a rare and often dangerous economic “reverse gear” that we will explore later.
Nigeria’s recent inflation journey
To fully grasp why prices are still so high, despite lower inflation numbers, we must first understand the ride Nigeria’s inflation rate has taken over the past couple of years.
The crisis period (2023/24)
As can be seen in the chart above, Nigeria’s headline inflation experienced a massive increase in 2024. January 2024, Nigeria’s headline inflation stood at 32.70%. This was due to two major economic events: the May 2023 removal of the petrol subsidy and the floating of the naira, which led to significant currency devaluation.
As months passed, inflation continued to climb. By October, it had climbed to 33.88%, and by December 2024, it peaked at 34.80%. Food prices skyrocketed as transportation costs increased. Imported goods became more expensive as the naira weakened. Businesses raised prices to cover their rising costs, and Nigerians across all income levels felt the pinch.
The impact on daily life was severe. A bag of rice that cost ₦35,000 in early 2023 now cost over ₦100,000. Eggs went from ₦88 each to ₦200-300 each. Transportation costs doubled, then tripled, and electricity tariffs reached historic highs. For many Nigerians, basic necessities were becoming a luxury.
The CPI rebasing (February 2025)
As earlier mentioned, inflation is a relative measure, it tells you how much prices have moved compared to a specific point in time. For 15 years, Nigeria used 2009 as its starting line. However, in February 2025, the National Bureau of Statistics (NBS) officially changed how we calculate inflation by rebasing the Consumer Price Index (CPI).
Think of CPI rebasing as an overdue software update for our economic speedometer. It affects three important elements at the same time:
- The Base Year: The NBS moved the speedometer from 2009 to 2024 (specifically December 2024). We stopped comparing today’s costs to a world where bread was ₦100; and shifted to the post-subsidy reality of 2024 (where a loaf now costs ₦1,000+).
- The Basket of Goods: The list of items tracked by the government expanded from 740 to over 930, accounting for modern essentials like data bundles, streaming services, Airbnbs, and ride-hailing apps—utilities that were barely on the radar 15 years ago.
- The Weights: The “importance” of each item was revised to reflect current spending habits. While food remains a massive expense, the new index gives more “weight” to transportation and healthcare, reflecting the increased portion of the Nigerian household budget these services now consume.
The rationale behind the rebasing was clear: the economy is constantly changing and people spend differently now than they did in 2009, so how we calculate inflation must also change to reflect the times.
The timing of this decision was also critical. By setting the new base during a period of extraordinarily high prices (due to fuel subsidy removal and Naira devaluation), the NBS essentially reset the scale at a peak level.
This created an immediate “base effect” on the numbers: the official inflation rate appeared to drop from 34.80% in December 2024 to 24.48% in January 2025. To use our car analogy: the car didn’t actually slow down; the NBS simply moved the starting line of the race so far forward that the relative distance traveled in the next minute looked much smaller on the dial.
The steady decline (February – November 2025)
Following the rebasing, inflation continued its downward trend throughout 2025:
- February 2025: 23.18%
- September 2025: 18.02%
- October 2025: 16.05%
- November 2025: 14.45%
Prices were still rising, but at a much slower pace than before. Several factors played a role in this: harvest season helped moderate food inflation, the naira showed relative stability, and the initial shock of the subsidy removal began to fade away. It was this steady decline that gave the Central Bank of Nigeria confidence to reduce the monetary policy rate from 27.50% to 27% in September 2025, the first rate cut in years.
A much needed review (December 2025 – January 2026)
Just when we thought the dust had settled, the NBS made another critical adjustment in January 2026. They realised they had erred in calculating the base year by using a single period (December 2024) instead of an average of the entire year as their reference point.
Because December 2024 had unusually high prices (driven by the fuel subsidy removal and naira devaluation), comparing any month in 2025 to that single high-price month would make inflation look like it was spiking, even if price increases had actually slowed down. Economists call this the “base effect problem.”
So they switched to the correct measurement — a 12-month reference period — averaging all the months in 2024. The International Monetary Fund endorsed this change, confirming its alignment with international best practices. The impact was significant. December 2025’s inflation was reported at 15.15%, while November’s was revised to 17.33% (it had initially been reported as 14.45%). The year ended with headline inflation at 15.15%, nearly 20 percentage points lower than the 34.80% recorded the previous year. A remarkable achievement on paper.
So what now? What has changed beyond the numbers?
As earlier stated, the rebasing did not just change the base year for calculating inflation, it also fundamentally altered the consumer price index weight (CPI) which is the relative importance assigned to different goods and services in the overall CPI basket.
Here’s a brief overview of these changes:
Consider food, which most Nigerians spend 50-70% of their income on. Under the old methodology, food carried a weight of 51.8% but under the new system, it has dropped to 40.1%.
At first glance, this looks like a dramatic reduction — but it’s not quite that simple. The weight for restaurants and accommodation surged from 1.2% to 12.9%, reflecting a real shift in how Nigerians eat today. Urbanisation, food delivery apps, and a growing culture of eating out mean that a larger share of food spending now happens outside the home. So in practice, the combined weight of food-related spending (food plus restaurants) is closer to 53% — not far from the old figure. The difference is that the NBS is now capturing where that money actually goes, rather than grouping it all under one category.
That said, the shift in other categories raises fair questions. Housing and utilities dropped from 16.7% to 8.4%, partly because items like student accommodation were moved to the education category. This isn’t necessarily a flaw, but the effect is that electricity and fuel now carry less weight in the headline number, even as electricity tariffs and petrol prices have hit record highs.
The weight on transportation has been increased from 6.5% to 10.7%, but this may not fully capture how much more expensive getting around has become since the subsidy removal; whether you’re filling up your car, ordering a ride, or taking public transport.
In many ways, the new methodology is not wrong. In fact, it more accurately reflects how spending habits have evolved. But for many households, the official inflation rate may tell a more optimistic story than what they experience on a daily basis.
Pie charts comparing the old and new weights.
Why prices stay high even when inflation declines
Now that we understand what inflation measures and the changes made to how it’s being calculated in Nigeria, let’s explore the specific reasons why your everyday costs may remain elevated despite the improving headline numbers.
1. Inflation measures rate of change, not price levels
We already touched on this earlier but it bears repeating: inflation is about how fast prices are rising, not the prices themselves. When inflation drops from 34.80% to 15.06%, it means the pace of price increase will slow down dramatically. But those prices that tripled during the high-inflation period? They become our new normal.
Prices don’t usually drop unless we experience deflation, which, as we will soon discuss, could signal serious economic problems. A lower inflation rate means your ₦200 egg will likely not go back down to ₦88, but next year, it might cost ₦230.
2. Economic shocks affect the price of items
The fuel subsidy removal and naira devaluation were huge economic shocks that permanently shifted Nigeria’s price landscape. When petrol prices jumped from ₦200 to ₦570 per litre in a matter of weeks in 2023, it affected transportation, and rippled through every sector:
- Manufacturing: Production costs surged due to higher energy and logistical expenses.
- Agriculture: Farm equipment, transportation of produce and irrigation became more expensive.
- Services: Everyone faced higher operating costs, from hairdressers to restaurants.
- Imports: A weaker naira made everything from rice to electronics more expensive.
These were not temporary increases that businesses could absorb and so fundamental repricing happened across boards which have led to new price levels becoming the baseline from which future increases will be measured.
3. Sector-specific pressures also play a key role
As overall inflation slows down, some sectors may continue to experience pressures that keep their prices high:
- Food and Agriculture: While harvest season helps moderate food inflation, many structural issues remain. Insecurity in farming regions is disrupting production. Poor infrastructure means high post-harvest losses. Limited access to modern farming techniques are keeping yields low. Climate change is making growing seasons more unpredictable. These ongoing challenges mean food prices could remain volatile, even as headline inflation improves.
- Energy: Despite the lower weight in the new inflation calculation, the cost of energy may remain high because electricity tariffs have increased dramatically and there are no more fuel subsidies. For SMEs, energy can represent up to 30-40% of operating costs, an expense that is inevitably passed on to consumers.
- Housing and Rent: In urban areas like Lagos, Abuja, and Port Harcourt, housing costs have skyrocketed due to migration and other related factors. Landlords typically demand 1-2 years’ rent upfront, and when lease renewals come up, they increase rents by 30-50% to account for inflation. Unlike goods you can choose not to buy, housing is non-negotiable.
4. Currency depreciation has ripple effects
The devaluation of the naira continues to affect prices, particularly for imported goods. Nigerians import a significant portion of what we consume, from food items like rice and wheat, to electronics, vehicles, pharmaceuticals, and manufacturing inputs.
When the naira weakened against the dollar, it permanently raised the naira cost of anything dollar-denominated. So even with the recent naira stability, businesses still take currency risk and depreciation into account when selling goods. This keeps prices elevated even during periods of relative exchange rate calm.
5. Wage raises influence business costs
For the economy to function properly, wages need to increase. People need to feel like their labour is valued. But when wages rise, businesses face higher labour costs, which they typically pass on to consumers through higher prices.
In response to the inflation surge of 2024, many Nigerian businesses increased salaries, some by 20-30%, and others by more modest amounts and palliatives. The government also raised the minimum wage from ₦30,000 to ₦70,000. While this helped workers cope with higher prices, it also contributed to businesses raising their prices to cover increased payroll expenses.
It is simple economics: A restaurant that increases how much it pays waiters would need to adjust its menu prices to stay profitable. A manufacturing company that raises factory worker pay must factor that into product pricing.
The Perfect Day (Piggy Comics)
6. Personal inflation is also a Thing™
The 15.06% headline inflation rate is an average across all goods, services, and spending patterns in Nigeria. Your personal inflation rate however, depends entirely on how you spend.
If you spend 60% of your income on food but food now carries only 40.1% weight in the official calculation, your personal inflation experience is higher than that of a person who spends 30% of their income on food. If you’re spending more on transportation because you commute long distances, or if you’re in one of the electricity bands with the highest tariffs, your costs will rise faster than the headline number suggests.
The official data doesn’t capture individual realities, especially for those whose spending concentrates in categories that are either rising faster or are underweighted in the new calculation.
7. Psychology affects market behaviour
Once prices reach a certain level, businesses are extremely reluctant to reduce them, even when their costs reduce. This is partly psychological: consumers might view price reductions as a sign of quality problems or a sign that the business is not doing well.
However, it is also practical. Businesses that reduced prices during the high-inflation period (maybe to help their customers or to compete with the market) would have faced immediate losses. Now that inflation is moderating, they’re using the breathing room to rebuild margins and create buffers for future cost increases, rather than passing their earnings to consumers.
Additionally, some businesses may use the general inflation narrative as cover for price increases beyond what their actual costs justify, a phenomenon sometimes called “greedflation” or opportunistic pricing.
8. Structural economic issues
Underlying all of the above are Nigeria’s persistent structural challenges:
- Poor infrastructure: Bad roads increase transportation costs and product losses
- Unreliable power supply: Businesses must invest in expensive backup generators
- Multiple taxation: Various federal, state, and local levies increase operating costs
- Insecurity: Affects farming, transportation, and overall business costs
- Port inefficiencies: Increases the cost of imports
These issues don’t disappear when inflation moderates. They continue driving costs higher across the economy, making it difficult for prices to come down even as inflation slows.
Why massive price decreases would be a problem
Given all the pain from high prices, you might think: “Wouldn’t it be great if prices just fell back to where they were in 2022?”
Not really. While it seems counterintuitive, widespread deflation—which occurs when the overall price level falls and inflation becomes negative (from 15.06% to -2% for instance)—can cause severe economic damage. This is because when prices start falling, people and businesses begin to change their behaviour:
- Consumers delay their purchases. If you know that a phone or a bag of rice will be 15% cheaper next month, why buy today? This mentality spreads, and spending plummets across the board, which can be devastating to the economy.
- Businesses stop producing. When companies see prices (and their revenues) falling, they respond by cutting costs. This means reducing production, laying off workers, and pausing investments. Why create products today that will sell for less tomorrow?
- Debt becomes heavier. If you borrowed ₦1,000,0000 when a bag of rice cost ₦100,000, you borrowed the equivalent of about 10 bags of rice. If deflation brings rice down to ₦50,000, you now have to pay back the equivalent of 20 bags of rice. Your debt has doubled in real terms, even though the number stays at one million naira. Worse, the assets you used to secure the debt, like your car, house, etc. are also losing value. So you could end up owing more than what your asset is worth. For individuals with mortgages, car loans, or business loans, deflation can be crushing. For businesses carrying debt, it can lead to bankruptcy.
- The economy spirals down. Less spending means less production, which leads to job losses, and even less spending. This is called a “deflationary spiral,” and it’s very hard to escape. Japan has been struggling with this for about three decades.
Economists agree that a good middle ground is low, stable inflation, typically around 2-3% in developed economies, and 5-8% for developing economies like Nigeria.
At these levels, prices rise gently and predictably, people keep spending, businesses keep producing, and debt stays manageable.
In essence, what Nigeria should be aiming for is disinflation, bringing the rate of price growth down toward a stable 5-8% target—rather than deflation. The goal is not to force prices back to 2022 levels as trying to do this would trigger a deflationary shock that would crush debtors and stifle investment. Instead, the goal is to keep prices at these new levels, and provide a stable foundation for wages and productivity to grow. True recovery comes from restoring purchasing power through income growth, not by trying to turn back the clock on the price index.
Some signs of relief
While the overall picture remains challenging, there have been some areas where Nigerians have experienced modest relief:
- Food prices are stabilizing: The harvest season brought significant improvements to food inflation, which peaked at over 40% in May 2024 but has since fallen to 11.08% in December 2025. While food remains expensive, the pace of increases has slowed considerably. In some markets, certain vegetables and staples have even seen slight price reductions.
- The Naira has been relatively stable: After the severe depreciation of 2023-2024, the naira has shown more stability in recent months, which has helped in moderating the cost of imports and reducing the frequency of price adjustments for imported goods.
These are modest improvements that suggest the trajectory is headed in the right direction.
In conclusion
The disconnect between falling inflation rates and stubbornly high prices is a reflection of how inflation actually works and the profound economic changes Nigeria has undergone in the past five years.
Both the January 2025 rebasing and the December 2025/January 2026 adjustment have given us more accurate, internationally recommended measures for inflation. But they’ve also made our ability to compare with previous periods more complex, by obscuring how certain categories that matter most to everyday Nigerians are being weighed.
At the end of the day, the health of Nigeria’s economy will depend on the following:
- Continued disinflation: Bringing inflation down to 5-8%, where it’s manageable.
- Wage growth: Ensuring salaries increase to match or exceed inflation.
- Structural reforms: Addressing the underlying issues (power, infrastructure, security) that keep costs high.
- Naira stability: Maintaining exchange rate stability to prevent imported inflation.
- Targeted relief: Support for the most vulnerable Nigerians who’ve been hit hardest.
This restoration will take time. In the meantime, by understanding why prices remain high despite improving inflation numbers, we can make more informed spending and saving decisions. Piggyvest remains committed to helping you save, invest and manage your finances, now more than ever.
Read this piece to find out more.
