The Central Bank of Nigeria (CBN) has raised fresh concerns about a potential spike in inflation, warning that persistent rises in input costs are putting mounting pressure on businesses and could soon trigger higher consumer prices.
This caution comes from the CBN’s June 2025 Purchasing Managers’ Index (PMI) Report, which presents a mixed picture of Nigeria’s economy—highlighting ongoing expansion in business activity alongside intensifying cost burdens.
While the PMI data shows that economic output continued to grow for the sixth consecutive month, with the composite index standing at 52.3 points, the central bank warned that the ability of businesses to continue absorbing rising costs without increasing prices may be reaching its limit.
The report reveals that input costs across the economy—particularly in the agriculture, industry, and services sectors—significantly exceeded output prices in June. This growing disparity means many businesses are currently shouldering higher expenses rather than transferring them to consumers, a trend the CBN deems unsustainable.
“The increase in the gap between higher input costs and output price tends to mount pressure on business profit margins. Cost absorption by firms is likely to be unsustainable in the long term and may foreshadow future consumer price inflation,” the report noted.
The agriculture sector emerged as the hardest hit, recording a cost absorption index of 9.8 points—the widest among the sectors surveyed. This indicates that farmers and agribusinesses are facing intense cost pressures, which could soon result in higher food prices. Given that food makes up more than half of Nigeria’s inflation basket, this trend poses serious inflationary risks.
By contrast, the services sector showed a narrower cost gap of 4.4 points, reflecting relatively more stable price dynamics, though cost pressures remain a concern. Despite these challenges, all three sectors continued to grow in June.
- Agriculture led with a PMI of 55.2—its eleventh straight month of expansion—boosted by favourable weather, the planting season, and targeted government support.
- Industry followed with a PMI of 51.4, with growth seen in 9 of its 17 subsectors.
- Services posted a PMI of 51.3, supported by increased activity in 11 of 14 subsectors, including logistics, hospitality, financial services, and digital platforms.
This continued growth reflects a degree of resilience and cautious optimism in the economy, supported by post-reform adjustments and seasonal gains. However, analysts warn that if the rising input costs are passed on to consumers, inflation—which is already elevated—could worsen, eroding household incomes and posing new challenges for economic management.
The CBN now faces a tough policy decision: whether to continue tightening monetary policy to tame inflation or hold interest rates steady to avoid stifling economic growth.
Experts attribute the surge in input costs to several key factors: the sustained depreciation of the naira, which has raised the cost of imported goods such as fuel, fertiliser, and machinery; higher energy prices resulting from the removal of fuel subsidies and increased electricity tariffs; and persistent insecurity in key agricultural regions, which has disrupted supply chains and escalated transport costs.
In summary, the June PMI report underscores a critical juncture for Nigeria’s economy. While business activity remains on a growth path, the rising cost burden is threatening to undo these gains. The CBN’s warning should be viewed as a call for urgent fiscal and structural reforms to reduce production costs, contain inflation, and protect the fragile economic recovery.
