CBN warns of looming inflation as rising costs squeeze Nigerian businesses

The Central Bank of Nigeria (CBN) has issued a fresh warning about a potential resurgence of inflation, as rising input costs threaten the sustainability of business operations across key sectors of the economy.

The alert comes from the CBN’s June 2025 Purchasing Managers’ Index (PMI) Report, which highlights both ongoing economic expansion and intensifying cost pressures.

While the PMI shows growth in business activity for the sixth consecutive month—with a composite index of 52.3 points—concerns are mounting over companies’ ability to continue absorbing soaring input costs without passing them on to consumers.

According to the report, input cost indices across the composite economy and within the industry, services, and agriculture sectors all outpaced output price indices.

This indicates that businesses are currently absorbing higher costs to avoid raising prices—an approach the CBN says is likely 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 apex bank stated.

The agriculture sector is bearing the brunt of these pressures, posting a cost absorption index of 9.8 points—the widest among all sectors.

This suggests that farmers and agribusinesses are particularly vulnerable and may be forced to raise food prices soon, potentially worsening Nigeria’s already high food inflation. Food accounts for over 50% of the country’s inflation basket.

In comparison, the services sector showed a smaller gap of 4.4 points, indicating more stable—but still concerning—cost dynamics. Despite these pressures, all three major sectors continued to expand in June.

Agriculture led the way with a PMI of 55.2—its eleventh consecutive month of growth—driven by improved weather, the planting season, and government interventions.

Industry recorded a PMI of 51.4, supported by increased production in 9 out of 17 subsectors.

Services followed with a PMI of 51.3, showing growth in 11 of 14 subsectors, including logistics, hospitality, finance, and digital services.

While the overall expansion suggests resilience and cautious optimism among businesses, the rising cost burden is casting a shadow over the outlook.

Analysts warn that unless addressed, the cost pressures could soon translate into consumer price hikes, further fueling inflation and reducing household purchasing power.

The CBN, which has been pursuing tight monetary policy to curb inflation and stabilise the naira, now faces a complex policy challenge: whether to continue raising interest rates at the risk of slowing economic growth, or hold steady and risk inflationary flare-ups.

Several factors are contributing to the rise in input costs, including the continued depreciation of the naira—which has increased the cost of importing raw materials, machinery, and fuel—higher energy prices following the removal of fuel subsidies and adjustments to electricity tariffs, and persistent insecurity in agricultural regions that has disrupted supply chains and driven up logistics expenses.

The June PMI report ultimately presents a dual message: while economic growth remains steady, the underlying cost challenges are intensifying. The CBN’s warning should serve as a prompt for coordinated fiscal and structural reforms to address production bottlenecks, manage inflation risks, and preserve the fragile recovery in Nigeria’s economy.