Nnanna: Iran Conflict to Lift Nigeria’s Inflation by 100bps

Nume Ekeghe

Nigeria’s inflation outlook is set to deteriorate further with prices likely to climb by at least 100 basis points in the near term as geopolitical tensions in the Middle East ripple through global supply chains and energy markets, Chief Economist at the Development Bank of Nigeria (DBN), Prof. Joseph Nnanna, has said.

Speaking at the inaugural Investors Roundtable hosted by VNL Capital Asset Management, in Lagos yesterday, Nnanna warned that the escalation involving Iran is already feeding into global price pressures, with Nigeria exposed to the spillovers.

“I guarantee you, minimally, you will see at least 100 basis points increase in inflation in the next CPI report,” he stated.

Nnanna argued that the shock extends well beyond crude oil, with second-round effects expected across food, logistics and business costs, reinforcing already elevated inflationary conditions.

“When I talk about inflation, I don’t exaggerate, because it cuts across every facet of our lives, transportation costs, cost of doing business, and even just living generally. Food will go up, energy prices will go up,  everything happens at once,” he said.

At the centre of the disruption is the Strait of Hormuz, a critical global trade artery that accounts for roughly a fifth of global oil flows, alongside significant volumes of manufactured goods.

“The reality is that this is an economic shock. Beyond oil, you have electronics, pharmaceuticals and other goods passing through that route. Any disruption has a lasting effect on the global economy,” Nnanna added.

Early signals of the pass-through are already evident in Nigeria’s downstream market, where fuel gantry prices have shown renewed volatility since the outbreak of hostilities.

“As soon as the war started, we began to see gantry prices shoot up. It came down at some point, but it is up again. That tells you the pressure is still there,” he said.

Against this backdrop, Nnanna urged corporates to reassess their operating assumptions, warning that static strategies could prove costly in a rapidly shifting macroeconomic environment.

“What you envisioned in your strategic retreats last year will have to change. If you remain static, you will regress and get left behind,” he cautioned.

He noted that smaller firms are particularly vulnerable to inflation shocks, given thinner buffers and limited pricing power.

“Small businesses, in particular, feel the pinch the most because they have lower savings propensity. The natural reaction is to cut costs, reduce staff strength and try to maximise shareholder value,” he said.

On policy direction, Nnanna interpreted the Central Bank of Nigeria’s recent 50 basis point rate cut to 26.5 per cent as a tentative signal of growth support, but questioned the timing amid intensifying global risks.

“The marginal cut in the monetary policy rate to 26.5 per cent was a signal that authorities want to stimulate growth. However, the question is whether that move was too soon, given what we now know about the global shocks,” he noted.

He expects policymakers to tread cautiously in the near term, with the possibility of renewed tightening if inflation accelerates.

“In my view, the monetary policy authorities will likely hold for now and observe developments. But it is not inconceivable for them to tighten again if inflationary pressures worsen,” he said.

Nnanna also pointed to the sensitivity of commodity markets to geopolitical signals, noting that crude oil prices remain highly reactive to shifts in diplomatic tone.

“If global leaders signal progress in negotiations, prices drop. If tensions escalate, prices spike. That is how the macro environment works,” he explained.

He further warned of potential capital reversals from emerging markets as investors seek safety amid heightened uncertainty.

“In times of uncertainty, capital naturally moves to safe havens. That is the reality. Emerging markets will see reduced inflows,” he said.

While acknowledging Nigeria’s relative exchange rate stability in recent months, Nnanna attributed this to policy interventions and external buffers.

“The central bank has enough in its toolkit to manage currency pressures. That is why we have seen relative stability in the naira despite global shocks,” he added.

However, he flagged rising fiscal risks, noting that currency volatility could increase the naira cost of servicing external debt obligations.

“If your currency becomes volatile, you will spend more of your local currency to service dollar-denominated debts. That is the implication,” he said.

For policymakers and businesses alike, Nnanna’s message was unequivocal: adapt quickly or risk falling behind.

“The key message is simple this is not the time to stand still. Businesses and policymakers must respond dynamically to these shocks,” he stressed.