Disinflation Reversal Makes Interest Rate Cut Less Likely
Global energy crisis is expected to put Nigeria’s interest rate cut on hold until the aftermath effects of the US-Iran war fizzle out, analysts said in a discussion with MarketForces Africa.
The market had anticipated that sustained disinflation and the naira’s rallies would be sufficient for the Central Bank of Nigeria (CBN) to reduce the benchmark interest rate.
The financial market has seen a double-digit real return on the naira asset, as higher interest rates (26.5%) track lower inflation (15.38%).
Amid the energy crisis, analysts predict the CBN is more likely to keep the monetary policy rate at 26.5%, arguing that macroeconomic indicators remain fragile and unable to absorb shocks.
Nigeria’s headline inflation reversed its disinflationary trajectory in March 2026, printing at 15.38% year on year, the first year-on-year uptick since April 2025.
The reversal was driven primarily by a sharp surge in energy costs as petrol motor spirit prices climbed to N1,200–N1,400/litre amid geopolitical tensions disrupting supply through the Strait of Hormuz.
The energy shock was transmitted broadly into food, core, and service-sector prices, pushing month-on-month headline inflation to 4.18%, more than double February’s 2.01%.
Core inflation rose to 16.21% y/y while food inflation accelerated to 14.31% y/y, with notable pressure from transport, housing utilities, logistics costs, and supply-side frictions.
The inflationary pressures were broad-based across key components of the index.
Food inflation rose significantly to 14.3% y/y, up from 12.1% y/y in February, representing a 220bps increase. Analysts said this acceleration was primarily driven by seasonal supply constraints associated with the ongoing planting season.
On a monthly basis, food inflation declined marginally to 4.2% from 4.7% in February, reflecting reduced demand after the Ramadan festive season.
However, farm produce inflation increased to 4.6% m/m, up from 3.7% m/m in the prior month, reflecting supply-side constraints that were further compounded by elevated transportation and logistics costs, amplifying pass-through effects on staple food prices.
In addition, core inflation also rose, to 16.2% y/y from 15.9% y/y in February. This was largely driven by increased fuel costs, which continue to exert upward pressure on service-related activities.
On a monthly basis, core inflation rose to 4.0% m/m (vs. 0.9% m/m prior) and services inflation rose to 2.6% m/m (vs. 0.3% m/m prior), reflecting the continued adverse effect of higher fuel prices on the services sector.
This supply-side pressure is likely to be further exacerbated by persistent logistics challenges, including elevated transportation costs and insecurity in key food-producing regions, which continue to disrupt farm-to-market distribution channels.
In addition, higher global energy prices remain a critical upside risk, as it raises the cost of imported food items and agricultural inputs such as fertilisers and agrochemicals.
Also, increased demand associated with the Easter celebration could further push food prices higher in April. CSL Stockbrokers Limited said core inflation will remain elevated, underpinned by sustained increases in fuel prices and their broad-based pass-through effects on services and other non-food components of the consumer basket.
Consequently, due to the second-round effect of higher fuel prices, higher operating expenses are expected across all sectors, including transportation, hospitality, and healthcare, thereby feeding into higher final consumer prices.
“Overall, we project headline inflation on a month-on-month basis to settle at approximately 2.2% in April, implying that inflation could reach 15.8% this month”, CSL Stockbrokers projected. Investors Gain N1.66trn in Nigerian Stock Market
