Base-year effects projected to drive inflation near 19%
By Victor Idajili
Nigeria’s economy is currently facing a statistical paradox: while month-on-month price pressures are beginning to cool, the annual headline inflation rate is projected to rise toward the 19 per cent mark in January 2026.
According to multiple results, this anticipated spike is a sign of the ‘base year effects’, a technical phenomenon where current prices are compared against the relatively lower price levels recorded in January 2025 when headline inflation stood at 24.48 per cent.
In its Inflation Expectation macroeconomic report for January 2026, Meristem Research observed that in December 2025, price pressures cooled further as headline inflation fell to 15.15 per cent year-on-year from 17.33 per cent in November, driven by declines in both food and core inflation. Food inflation eased to 10.84 per cent YoY (from 14.21 per cent YoY), supported by ample supply conditions and lower logistics costs, which helped slow price increases of key staples. Similarly, core inflation declined 18.63 per cent YoY (from 20.59 per cent YoY), largely due to a reduction in fuel price alongside a stable and stronger exchange rate as the naira appreciated 6.61 per cent YoY in December to an average of N1,450.97/$.
As of January 2026, inflationary pressures continued to moderate, largely on account of the normalisation of post-holiday demand and fairly strong supply conditions. Also, PMS prices remained largely stable for most of the month following the Dangote Refinery’s price reduction in December, with most stations retailing PMS around N739.00 per litre.
“We envisage that the stable fuel price should help contain transport and energy-related cost pressures within the core index,” part of the report read.
Providing an assessment of the impact of the combination of factors, the Meristem analysts said, “In our assessment, the factors highlighted above point to continued easing in price pressures in January 2026, particularly across core components. As a result, we expect core inflation to sustain its month-on-month decline. We also project sustained deceleration in monthly headline inflation, primarily driven by cooler core inflation. Nonetheless, lingering pressures in the FX parallel market could weigh on the disinflation pace.
“On the contrary, monthly food inflation may increase as the deflation recorded in December 2025 provides a low base for comparison. Additionally, we expect a rise in annual headline inflation due to the base effect resulting from a relatively lower CPI reading in January 2025, following the normalisation of the CPI series. Hence, we forecast January’s headline inflation at 18.88 per cent YoY.”
