…Managing the economy and inflation has been challenging because of the complex and paradoxical nature of the economy
By Arize Nwobu
MON MAY 25 2026-theGBJournal| One of the hallmarks of an unhealthy economy is a fast rising inflation rate which erodes purchasing power and disrupts the economic well-being of its citizens, and central banks across the world would do that is necessary and possible to tame inflationary pressure to ensure better living standards and economic growth.
There are different types of inflation and which are caused by different factors. Inflation can be cost-push or demand- pull.
The former is due to higher production costs which leads to a decrease in aggregate supply and an increase in overall price level and the latter is when demand for goods and services in an economy rises more rapidly than an economy’s productive capacity.
Also, the economic concept of monetarism argues that money supply in an economy is the primary driver of economic growth and inflation, and that the growth rate of the money supply determines the inflation rate.
Experts have noted that governments can induce inflation when they incur debts, print money and increase money supply at a much greater rate than the growth rate of the GDP.
In 2024, the quantity of money that circulated in the economy increased progressively from N3.28 trillion in January to N3.41 trillion in February and to N3.9 trillion in March and further to N4.1 trillion in October and 93 percent of the quantity were reportedly outside the banking system.
In 2025, the quantity of physical cash outside the banking system rose to N5.4 trillion, according to the Money Supply Data by the Central Bank of Nigeria( CBN).
And total liquidity that circulated in the economy, which included both cash outside banks, customer demand deposit and other short-term liquid assets, stood at N124.4 trillion.
The volume of money circulating in the economy affects the GDP, overall economic growth, inflation rate and interest rate, thus the need for the right quantity of money to circulate for price stability and a healthy economy.
Interest rate is the cost of money and one of the major macroeconomic variables which determine the pulse, direction and health of an economy, and a healthy economy is growing, stable and sustainable and which supports the economic well-being of the citizens.
Managing the economy and inflation has been challenging because of the complex and paradoxical nature of the economy.
Inflation management has been a major commitment of the Central Bank of Nigeria( CBN) and the Bank has been on top of the matter and working with the essential principles and policy tools to tame inflation.
The inflation trajectory has always been on the upward trend over the years. Inflation determines how central banks regulate money supply.
Traditionally and going by monetarism, central banks raise rates as inflation rate rises in order to dampen the ‘animal spirit’ or risk appetite of the economy.
Historically, between 2007- 2013, inflation rate was between 10- 12 percent and CBN pegged the Monetary Policy Rate( MPR) at 12 percent and inflation dropped to 8.0 percent.
In 2017, inflation rate rose to 19.0 percent and CBN raised and pegged the MPR at 14.0 percent and inflation dropped consistently from 19.0 percent in January to 15.37 percent in December 2017, and further to 13.34 percent in March, 2018.
In July 2022, inflation rate rose to 19.64 percent and further to 20.52 percent in August. It rose further to 20.77 percent in September and anchored at 21.09 percent in October.
In 2023, inflation rate rose to 22.40 percent in March and further to 34.80 percent in December, but it later dropped to 24.48 percent after the National Bureau of Statistics( NBS) rebased the Consumer Price Index( CPI).
In managing inflation, CBN Governor, Olayemi Cardoso had noted that the Monetary Policy Committee( MPC) of the Bank often examined the face of data before they took decisions.
In February 2024, as inflation escalated, CBN launched a wild fight against it and raised the MPR from 18.75 percent to 22.75 percent which was phenomenal and unprecedented in the record of the MPC.
In March, the MPR was further raised to 24.75 percent and subsequently to 26.25 percent and other monetary policy tools were also adjusted accordingly.
Going forward, the MPR was later increased and retained at 27.0 percent since September, 2025.
But after inflation moderated, the Monetary Policy Committee( MPC) during its 304th meeting in February 24, 2026, reduced the MPR by 50 basis points( 0.50 percent) to 26. 50 percent.
It was a cautious reduction that was meant to stimulate growth but while still keeping a close tab on inflation.
Prior to the subsequent meeting (305th) of the MPC which held in May 19 and 20, CBN conducted a survey on inflation expectation in April and reported that the Inflation Perception Index stood at 40.50 percent which suggested that respondents perceived inflation as high.
CBN noted that “the survey revealed high public engagement with CBN Communications( 92.10 percent), a general perception of transparency( 93.3 percent) and a strong desire for a reduction in interest rates( 63.3 percent).
Reportedly, 63.0 percent of the respondents wanted a reduction in interest rates, while 26.0 percent wanted interest rates retained at current levels and 10.70 percent.
Also, in it policy brief ahead of the said 305th meeting of the MPC in May 19 and 20, the Centre For the Promotion of Private Enterprise( CPPE) suggested against further increase in interest rates.
CPPE argued that the current inflationary pressure was “predominantly cost-push, driven by high energy costs, logistics bottlenecks and currency depreciation”, and “because inflation is supply- driven and not caused by excess consumer demand, aggressive rate hikes will have limited effectiveness.”
After conducting due environmental scanning and examined the face of data, CBN maintained the status quo and retained the MPR at 26.50 percent to continue with the cautious stance while keeping a tab on inflation.
Nwobu, a Chartered Stockbroker and Business Journalist wrote via arizenwobu@yahoo.com Tel 08033021230.
X-@theGBJournal|Facebook-the Government and Business Journal|email:gbj@govbusinessjournal.com|govandbusinessj@gmail.com
