Pre-Election Spending to Keep Inflation, Interest Rates Elevated – Analysts
As Nigeria heads towards the 2027 election, an interest rate cut is becoming less likely, as the market anticipates inflation to accelerate further starting in the third quarter.
Already, the war in the Middle East has affected the nation’s consumer price index due to elevated international oil prices, which have driven up petrol prices.
Market analysts anticipate a significant surge in the money supply, demand for foreign currency, and high spending will put pressure on consumer inflation.
The movement in the inflation rate is expected to be complicated by pre-election spending ahead of 2027, the research subsidiary of Zedcrest Securities Limited said in a report.
Historical evidence suggests that Nigerian pre-election inflation cycles become materially more inflationary when supported by elevated oil revenues that can finance aggressive fiscal expansion and politically driven spending, the investment firm said.
Analysts explained that the 2011 election cycle, when crude prices traded around $95 per barrel, saw inflation accelerate toward roughly 12.8%.
The situation contrasts sharply with the 2015 period, when oil prices collapsed toward the $40–$50 range, limiting fiscal spending capacity and moderating inflation pressures despite similar political conditions.
Current macro conditions increasingly resemble a higher-liquidity framework.
“With Nigeria’s 2026 budget benchmarked at roughly $64/bbl, while our base-case oil outlook remains closer to $80/bbl alongside relatively stable FX conditions around ₦1,380/$, fiscal space is expected to improve heading into the broader pre-election cycle”.
The firm said higher government spending, social interventions, and politically sensitive disbursements could reinforce core inflation pressures through H2 2026.
The anticipated surge in inflation could force the Central Bank to maintain a hawkish monetary stance as policymakers attempt to offset election-related liquidity expansion.
Nigeria’s headline inflation sustained its upward trajectory in May 2026, edging up 24 bps to 15.93% y/y from 15.69% y/y in April, marking the third consecutive month of increases. The acceleration was broadly driven by persistent pressure across both food and core segments.
Meanwhile, on a month-on-month (MoM) basis, headline inflation declined by 39bps to 1.75% from 2.13% in April, reflecting a slower pace of food price increases and easing transport costs.
Food inflation accelerated by 90bps to 16.96% y/y in May 2026 from 16.06% y/y in April, marking its fourth consecutive monthly increase and the highest reading since September 2025.
Nonetheless, food inflation eased on a month-on-month basis, declining by 65 bps to 2.98% from 3.63% in April, supported by softer energy and transportation costs.
Imported food inflation moderated sharply to 2.27% m/m in May from 4.38% m/m in April, reflecting the combined effects of a slight appreciation of the naira (+0.12% m/m in May) and easing global food prices.
Core inflation (all items less farm produce and energy) rose to 16.82% y/y in May 2026, up from 15.86% y/y in April, representing a 97 bps increase and signalling renewed underlying price pressures across non-food components.
The increase followed the moderation recorded in previous months, suggesting that the temporary easing in exchange rate pass-through effects and energy-related cost pressures has begun to reverse.
The de-escalation of tensions in the Middle East following the expected U.S.–Iran peace agreement should help reduce upside risks to global energy prices, while sustained exchange rate stability is expected to further ease imported inflation pressures. Naira Depreciates, Touches N1392 on FX Liquidity Shortfall
