Inflation Watch!
CBN Raises Red Flag as Soaring Input Costs Threaten Consumer Prices
The Central Bank of Nigeria (CBN) has issued a cautionary signal that Nigeria may be approaching a new wave of consumer price inflation, driven by rising input costs across key economic sectors. This warning comes as businesses struggle to maintain margins without passing increasing costs on to consumers.
This insight was drawn from the June 2025 Purchasing Managers’ Index (PMI) Report, which was recently released by the apex bank.
What the CBN Report Reveals
According to the report, there’s a widening gap between the input price index and the output price index across three major sectors—Industry, Services, and Agriculture. This imbalance signals that businesses are currently absorbing the rising cost of raw materials, energy, and logistics instead of passing them on to the final consumer.
The CBN noted that such a trend is unsustainable in the long run, stating:
“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.”
Agriculture Faces the Sharpest Cost Pressures
Among all sectors, agriculture is absorbing the highest cost pressure, recording a cost absorption index of 9.8 points in June 2025. This marks the widest gap between input and output prices across all sectors—raising concerns about food price inflation in the months ahead.
In contrast, the services sector recorded the smallest gap at 4.4 points, although it still reflects strain on margins.
Despite Inflation Risks, Business Activity Remains Resilient
Interestingly, despite these margin pressures, all three sectors—industry, services, and agriculture—posted growth in June, with the overall Composite PMI standing at 52.3 index points. This indicates a sixth consecutive month of economic expansion, reflecting continued resilience across the Nigerian economy.
Here’s how the sectors performed individually:
• The industry sector recorded a PMI of 51.4 points, marking six months of consecutive growth, driven primarily by increased production. Out of 17 industrial subsectors, 9 reported positive momentum.
• The services sector grew modestly, with a PMI of 51.3 points. Growth was supported by 11 of the 14 subsectors, underpinned by rising demand and business activity.
• Agriculture emerged as the top-performing sector, with a PMI of 55.2 points. This marks its eleventh straight month of growth, buoyed by expanded farming activity. Notably, all five agricultural subsectors recorded increased activity.
⚠️ Why This Matters
The growing disparity between input and output costs is a leading indicator of potential inflation. As businesses find it harder to bear rising costs, they may soon transfer these pressures to consumers, potentially reversing recent disinflationary gains.
The CBN’s subtle warning also places pressure on fiscal and monetary policymakers to closely monitor inflationary risks—especially as Nigeria navigates a fragile post-subsidy economic recovery.
Final Thoughts
While the PMI data reflects continued economic resilience, the cost-side pressures suggest that this growth may come at a price—literally. If businesses begin to raise prices to protect their margins, Nigeria could see renewed inflationary momentum in the coming months.
For investors, consumers, and policymakers alike, this is a critical signal to watch.
CBN Raises Red Flag as Soaring Input Costs Threaten Consumer Prices
The Central Bank of Nigeria (CBN) has issued a cautionary signal that Nigeria may be approaching a new wave of consumer price inflation, driven by rising input costs across key economic sectors. This warning comes as businesses struggle to maintain margins without passing increasing costs on to consumers.
This insight was drawn from the June 2025 Purchasing Managers’ Index (PMI) Report, which was recently released by the apex bank.
What the CBN Report Reveals
According to the report, there’s a widening gap between the input price index and the output price index across three major sectors—Industry, Services, and Agriculture. This imbalance signals that businesses are currently absorbing the rising cost of raw materials, energy, and logistics instead of passing them on to the final consumer.
The CBN noted that such a trend is unsustainable in the long run, stating:
“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.”
Agriculture Faces the Sharpest Cost Pressures
Among all sectors, agriculture is absorbing the highest cost pressure, recording a cost absorption index of 9.8 points in June 2025. This marks the widest gap between input and output prices across all sectors—raising concerns about food price inflation in the months ahead.
In contrast, the services sector recorded the smallest gap at 4.4 points, although it still reflects strain on margins.
Despite Inflation Risks, Business Activity Remains Resilient
Interestingly, despite these margin pressures, all three sectors—industry, services, and agriculture—posted growth in June, with the overall Composite PMI standing at 52.3 index points. This indicates a sixth consecutive month of economic expansion, reflecting continued resilience across the Nigerian economy.
Here’s how the sectors performed individually:
• The industry sector recorded a PMI of 51.4 points, marking six months of consecutive growth, driven primarily by increased production. Out of 17 industrial subsectors, 9 reported positive momentum.
• The services sector grew modestly, with a PMI of 51.3 points. Growth was supported by 11 of the 14 subsectors, underpinned by rising demand and business activity.
• Agriculture emerged as the top-performing sector, with a PMI of 55.2 points. This marks its eleventh straight month of growth, buoyed by expanded farming activity. Notably, all five agricultural subsectors recorded increased activity.
⚠️ Why This Matters
The growing disparity between input and output costs is a leading indicator of potential inflation. As businesses find it harder to bear rising costs, they may soon transfer these pressures to consumers, potentially reversing recent disinflationary gains.
The CBN’s subtle warning also places pressure on fiscal and monetary policymakers to closely monitor inflationary risks—especially as Nigeria navigates a fragile post-subsidy economic recovery.
Final Thoughts
While the PMI data reflects continued economic resilience, the cost-side pressures suggest that this growth may come at a price—literally. If businesses begin to raise prices to protect their margins, Nigeria could see renewed inflationary momentum in the coming months.
For investors, consumers, and policymakers alike, this is a critical signal to watch.