Central Bank of Nigeria Raises Fresh Inflation Concerns Amid Business Cost Pressures
The Central Bank of Nigeria (CBN) has issued a renewed warning over potential inflationary spikes, as enterprises across critical sectors contend with escalating input costs that are squeezing profitability.
Contained in the apex bank’s June 2025 Purchasing Managers’ Index (PMI) Report, the caution highlights mounting cost pressures amid modest business expansion. The report presents a dual narrative steady growth in output alongside intensifying input costs that businesses may soon be forced to transfer to consumers.
Central Bank of Nigeria. According to the report, input cost indices across Nigeria’s composite economy spanning the industry, services, and agriculture sectors outstripped their corresponding output price indices during June. This widening disparity signals that many firms have so far absorbed rising costs instead of passing them on, a tactic the Central Bank of Nigeria warns cannot be maintained indefinitely.
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“The increase in the gap between higher input costs and output prices tends to erode business profit margins. Sustained cost absorption is likely to become unviable and may precipitate future consumer price inflation,” the apex bank noted.
Central Bank of Nigeria . This development is particularly worrying against the backdrop of Nigeria’s entrenched inflation challenges, driven by currency depreciation, high transportation and energy costs, and imported inflation stemming from global commodity price shocks.
Of the three main sectors reviewed Industry, Services, and Agriculture the agricultural sector experienced the sharpest cost-output gap. It posted a cost absorption index of 9.8 points, the highest on record for this survey, indicating mounting pressure on farmers and agribusinesses. This trend could trigger fresh increases in food prices, which already contribute over 50% to Nigeria’s inflation basket.
Conversely, the services sector recorded the narrowest cost gap at 4.4 points, pointing to relatively stable pricing structures for now. However, it remains under strain that could spread across the broader economy if left unchecked.
Despite these inflationary risks, the June PMI data revealed a resilient economy, with all three primary sectors maintaining positive business activity. The composite PMI stood at 52.3 index points, marking six consecutive months of expansion. This sustained growth reflects cautious optimism fueled by policy reforms, seasonal gains in agriculture, and gradual recovery in industrial output.
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The Industry sector reported a PMI of 51.4, representing its sixth straight month of growth, driven by increased production levels in 9 out of 17 subsectors.
The Services sector followed closely, with a PMI of 51.3, as 11 of its 14 subsectors posted improved activity. This growth was largely supported by rising demand in logistics, hospitality, financial services, and digital platforms.
Meanwhile, the Agriculture sector led with a PMI of 55.2 the highest across all sectors and its eleventh consecutive month of expansion. Growth in this sector was attributed to favourable weather, planting season dynamics, and targeted interventions aimed at supporting farming operations.
Though the expansion offers a positive outlook for economic policymakers, the Central Bank of Nigeria warning on cost absorption underscores a difficult policy dilemma. Should firms begin transferring these costs to consumers, already-high inflation could accelerate further, eroding purchasing power and complicating future monetary policy decisions.
The Central Bank of Nigeria, which has tightened monetary policy in recent months to contain inflation and stabilise the naira, may face the challenge of balancing inflation control against sustaining fragile economic momentum.
Experts have identified several factors behind the mounting input costs, including:
Continued depreciation of the naira, raising the cost of imported machinery, fertiliser, fuel, and raw materials.
Energy price shocks from fuel subsidy removals and adjustments in electricity tariffs.
Persistent security challenges in agricultural areas, disrupting supply chains and increasing logistics expenses.
While the June PMI report indicates encouraging trends in business activity and output, it simultaneously raises red flags over underlying cost pressures that may spark a fresh inflationary surge. The Central Bank of Nigeria emphasises that continued cost absorption without corresponding price adjustments may soon become unsustainable.
As businesses approach this tipping point, a delayed pass-through of higher input costs to consumers seems increasingly likely in the coming months. The central bank’s advisory serves not only as a macroeconomic alert but also as a call for fiscal, structural, and security reforms to curb production costs and consolidate recent gains in economic recovery.
