In a discussion today at the 2025 NESG Macroeconomic Outlook, Taiwo Oyedele, Chairman of the Presidential Fiscal Policy and Tax Reforms Committee, shed light on the feasibility of Nigeria achieving an inflation rate of 15% in 2025, “15% is realistic for 2025,” he stated. His insights provide a hopeful yet pragmatic view of how this ambitious target could be met, considering the current inflation rate, economic landscape, and past trends.
Understanding the Base Effect
Mr. Taiwo Oyedele emphasized the critical role of the “base effect” in understanding why a 15% inflation rate in 2025 is not only plausible but realistic. “In 2024, the average inflation was about 33%,” he stated, explaining that if conditions remain unchanged, inflation would increase by 33% from the previous year’s end figure, leading to a 25% rise. However, Mr. Taiwo Oyedele argued, “But all things will not be equal.” This acknowledgment points to the expected changes in policy and economic conditions that could alter this trajectory.
Data-Driven Projections
Addressing skepticism around the government’s optimistic inflation forecasts, Mr. Taiwo Oyedele noted, “Analysts are wondering why on earth is the government expecting inflation to be 15%? In 2025. But they haven’t been supporting their points with data.” He stressed the importance of data in economic analysis, suggesting that without it, expectations could become self-fulfilling prophecies. His approach is to use empirical data to guide expectations rather than speculation.
Policy Interventions and Their Impact
The journey to a 15% inflation rate involves several key policy interventions that have already been set in motion or are planned for the near future:
- Fuel Subsidy Removal: Mr. Taiwo Oyedele highlighted, “The PMS subsidy remover, which has now been properly removed… for the first time we have the market structure to determine the price no longer the NNPC.” This reform has led to a significant reduction in fuel consumption, directly impacting the demand for foreign currency and thus reducing inflationary pressures.
- Fiscal and Monetary Synergy: There’s a push for better coordination between fiscal and monetary policies, which Mr. Taiwo Oyedele believes is essential for managing inflation. “We need to continue most of the policy reforms that we started with,” he said, indicating a commitment to ongoing reforms aimed at stabilizing the economy.
- Exchange Rate Management: With currency stability being a key factor, Mr. Taiwo Oyedele pointed out the expected stabilization due to reduced import needs, especially for fuel, which could lead to less pressure on the naira and, consequently, on inflation.
Challenges and Expectations
Despite the optimism, Mr. Taiwo Oyedele doesn’t shy away from the challenges, particularly the need to manage public expectations and the actual economic fallout from these reforms. He noted, “The inflation expectation itself can be self-fulfilling,” reinforcing the need for clear communication and strategic policy implementation to prevent adverse public sentiment from driving up inflation expectations.
Mr. Taiwo Taiwo Oyedele’s paints a picture of cautious optimism where achieving a 15% inflation rate in 2025 is deemed “realistic” provided that the government continues on its current path of reforms without reversing gains made in 2024. “15% is realistic. For 2025,” he concluded, emphasizing the potential for Nigeria to navigate its economic challenges toward stability. His insights suggest that through strategic policy-making, data-driven analysis, and the right economic adjustments, Nigeria can indeed aim for and potentially achieve this inflation target, setting a foundation for broader economic stability and growth.