This week, we zoom in on the October 2025 Consumer Price Index (CPI) report released by the National Bureau of Statistics (NBS) – its drivers, our outlook, and expectations of the upcoming MPC meeting.
Sharper than our expectation, the headline inflation rate dropped for the seventh consecutive month to 16.1% y/y in October from 18.0% y/y in September (Afrinvest forecast: 17.3%). The sharp disinflation momentum in the y/y reading partly reflects a high base year effect. Meanwhile, the m/m CPI reading tells a different story –headline inflation accelerated 21bps to 0.93% in the review month.
Breaking the CPI into components, the food inflation sub-basket rate eased further by 3.8ppts to a 20-month low of 13.1% y/y (September: 16.9%) due to improved harvests and Naira stability (up 11.7% y/y to ₦1,460.06/$1.00). On a m/m basis, the food index recorded a 0.4% deflation, albeit at a much softer pace compared to the 1.6% decline in September, signaling a gradual easing of harvest-driven price relief. Although prices remained in deflationary territory, the slower pace reflects emerging supply-chain frictions following the brief PENGASSAN strike, which disrupted fuel availability and exerted mild upward pressure on transportation and distribution costs. In fact, the impact of the strike was evident in the energy index as price level rose by 0.5% m/m compared to the 0.5% deflation recorded in September.
The core sub-basket (all items excluding food and energy) sustained its stability as it eased 84bps to 19.53% y/y while it remained at 1.4% m/m in October. The stability reflects the slowdown in cost pressures across non-volatile components such as healthcare (0.6% from 1.8%), education services (0.8% from 2.7%), and clothing & footwears (0.4% from 0.6%) – thanks to the relatively stable exchange rate (up 2.4% m/m to ₦1,460.06/$1.00 in October). Notably, urban inflation slowed to 15.7% y/y (September: 17.5%), while rural inflation moderated to 15.9% y/y (September: 18.3%).
On a monthly basis, urban inflation edged higher to 1.1% (September: 0.7%), while rural inflation softened to 0.5% (September: 0.7%) – indicating that staple-producing states are beneficiaries of improved harvest. By state, Ekiti (20.1%), Nasarawa (19.0%), and Zamfara (18.8%) recorded the steepest y/y price increases, while Bauchi (10.0%), Anambra (11.7%), and Gombe (11.7%) posted the lowest readings.
Overall, we note that the stability of the Naira (sixth consecutive monthly appreciation aided mainly by CBN’s market reforms) has played a significant role in the disinflation trend. However, the sustainability of the FX stability will depend on effective management of FPI sentiment around the controversial changes to CGT (including government consideration of the rate reduction) set to become effective in 2026.
Looking ahead, we expect the disinflation trend to persist through November. We premise our outlook on expected recovery in the energy basket, following the resolution to the brief PENGASSAN strike and the moderation in global Brent price. At the same time, the ongoing harvest season and stable exchange rate should remain supportive of farm and imported food inflation, though seasonal stockpiling ahead of the festive period may exert a mild upward pressure.
Against this backdrop, we forecast headline inflation to rise mildly to 1.1% m/m in November, while the favourable base effect should drive annual inflation lower to 15.8%. Given minimal risks ahead, especially following the suspension of the proposed 15.0% tariff on petrol and diesel imports, we expect the positive inflation dynamics, relative FX stability, and firm GDP growth expectation (Afrinvest projection for Q3: 3.8-4.3% y/y) to support a dovish call at the MPC meeting scheduled for 24–25 November. Specifically, we anticipate a modest 25–50bps rate cut, which should sustain bonds rally but with limited effect on equities.
Afrinvest
