Disinflation beyond the naked eye

Disinflation does not mean inflation has ended or that prices have stabilised. No. It simply means that prices are still rising, but at a slower pace. The Tinubu administration celebrated the announcement that headline inflation fell to 18 per cent in September from 20.1 per cent in August and 21.9 per cent in July, according […]

Disinflation does not mean inflation has ended or that prices have stabilised. No. It simply means that prices are still rising, but at a slower pace.

The Tinubu administration celebrated the announcement that headline inflation fell to 18 per cent in September from 20.1 per cent in August and 21.9 per cent in July, according to CBN data. This was achieved by printing less money and using foreign loans to defer devaluation at a time when the dollar is declining at a record level.

Yes, there is some room for relief in this outcome. There is a steady easing in the rate of increase in prices. The twelve-month average change has also slowed to 23.5 per cent from 24.7 per cent in August. Food inflation, which drives much of the consumer basket, declined from 22.7 per cent in July to 16.9 per cent in September.

The data show clear disinflation, but prices are not falling. The cost of food, transport, and housing is still climbing month by month, though at a slower pace than before. For Nigerians, this is not relief in absolute terms. It is only a slower erosion of real income. Yes, there are signals of improvement in monetary control, but this data cannot guarantee price stability.

Another point to note is that the 2025 budget set a symbolic inflation target of 15 per cent.

Yet, with three-quarters of the year gone, actual inflation has averaged well above 20 per cent. This gap clearly indicates that the Central Bank’s price stability objective has not been met. The policy stance—particularly fiscal expansion and exchange-rate pressures—has failed to align with monetary control. In effect, the inflation goal is not operational.

For the economy, the shortfall carries several implications. First, the Central Bank’s credibility is at risk. When inflation persistently exceeds the target, expectations adjust upwards, making future disinflation harder and more costly. Second, public finances weaken as higher prices inflate nominal spending needs, especially on subsidies and wages, while revenues lag in real terms. Third, borrowing costs remain high. Investors demand higher yields to protect against inflation, pushing up debt service burdens.

To put it mildly, the inflation rate figure is not attractive for the economy. It is too high. It distorts investment planning, as firms face uncertainty over input and borrowing costs. Real incomes continue to fall, eroding purchasing power and increasing the risk of poverty. This was also highlighted by the World Bank, Nigeria’s major lender.

Without tighter coordination between fiscal policy, exchange-rate management, and monetary control, disinflation will remain slow, and the benefits of a credible target—predictability, lower borrowing costs, and investor confidence—will not be realised.

It is true that the money supply—printing money—has been increasing at a modest rate. This can partly be attributed to World Bank and IMF conditionalities. Between June and August 2025, Nigeria’s M2 money supply rose from N117.24 trillion to N119.51 trillion—an increase of about N2.27 trillion, or roughly 1.9 per cent over two months. This increase is tolerable compared with earlier surges seen between late 2023 and early 2025, when money growth rose in double digits.

Slower monetary expansion is consistent with current disinflation, as reduced liquidity growth limits demand pressures in the economy.

But there is more than meets the eye. The composition of funding has shifted, according to CBN data. Nigeria’s net foreign assets—the difference between what we own abroad and what we owe to foreigners—fell from N47.8 trillion in May to N40.9 trillion in August, while net domestic assets rose from N71.4 trillion to N78.6 trillion. This means that although money growth has slowed overall, it is now being financed more by domestic credit and external borrowing rather than foreign reserves.

Let us not forget that World Bank loans are part of Nigeria’s foreign liabilities, which account for the reduction of net foreign assets. Only a few months ago, Nigeria’s Senate approved another $21 billion external borrowing plan. Late last month, the World Bank announced the approval of three loans totalling $1.57 billion. These are yet to be ratified by the Senate before being added to the country’s debt profile.

Clearly, reliance on new foreign loans—such as World Bank loans—provides temporary budget support and foreign-exchange liquidity. The problem is that, although this sounds good at the moment, it will weaken longer-term disinflation if fiscal injections feed back into spending.

Not printing more money as before is helping prices rise more slowly. However, the high level of continued borrowing and domestic credit growth is a risk to the economy. Any government debt without a credible repayment plan will eventually force the government to monetise the debt by printing money. This will only take us back to square one—higher inflation. Let us also remember that foreign loans come in foreign currency, which will require further devaluation of the naira.

Therefore, you can fairly say that this disinflation has been achieved at the expense of an artificially maintained exchange rate, supported by foreign loans. The government injects foreign currency via various loans, using it to buy naira in the local market, which postpones further devaluation.

But this loan intervention is not bringing stability to the local market. Inflation remains high, at 18 per cent. Traders are on the edge. They feel the value of the dollar is unsustainable, with some betting against the market. The situation will change once American policy changes and the dollar begins recovering from its record decline.

With this information in the open, prudent marketers do not believe that devaluation can be

avoided. And they know that devaluation for an import-dependent economy like ours is undesirable, because it directly increases inflation and reduces real incomes.

Meanwhile, fiscal adjustment has relied heavily on eroding the value of real wages and pensions.

Let’s not forget about budget delays; we are still operating under the 2024 budget in the last quarter of 2025, which results in deferred capital expenditures, except for selected projects of specific interest to the President.

Practically speaking, we can conclude that the Tinubu administration’s short-term management may work temporarily. However, reliance on multilateral loans risks eventual loss of policy autonomy. Their conditionalities will increasingly control major government decisions, as seen with the removal of various subsidies—including fuel, electricity, health, education, and agriculture. There is no precedent in Nigerian history for anything similar.