*MPC meets this week with food inflation down to 19.57% but election cash and stronger dollar threaten to reverse gains
The Central Bank of Nigeria, (CBN)’s Monetary Policy Committee, (MPC) begins its 307th two-day meeting today, September 21, 2026 amid dilemma options of either cutting interest rate following inflation figures that have eased in recent months or hold firm against threats of fiscal expansion ocassioned by pre-election liquidity surge, as well as stronger dollar.
Specifically, food prices, according to the nation’s Statistics Bureau, (NBS) finally gave Nigerian households a breather in August.
The cost of palm oil, pepper, onions, yam flour and beef, the items that drove food inflation to 20.31% in July, it claims, rose by just 1.02% last month, down from 5.56%, as headline inflation eased to 15.39%.
On the other hand, the same political liquidity surge that has derailed disinflation in 2010-11, 2014-15, 2018-19 and 2022-23 is building again ahead of 2027.
That relief is exactly why this week’s MPC’s meeting seems difficult. CBN has been desperate for disinflation to resume. Now that food is cooperating, the textbook move would be a rate cut to make farm credit cheaper.
But the United States’ Federal Reserve, Fed says more rate hikes likely needed to quell inflation
St. Louis Fed President, Alberto Musalem told Reuters on Monday that Fed will likely need to hike interest rates further to lower inflation resulting from strong demand as well as a commodity price shock that has moved beyond oil, adding that it would be better for the US central bank to act sooner than wait.
“Both persistent demand and recurring supply forces are continuing to contribute to keeping inflation risks elevated, and I judge that without further policy restraint on inflation it is more likely to be substantially above our 2% target in 18 months than at target,” Musalem said in an interview with Reuters.
“I think it’s crucial that policy puts a meaningful restraint on inflation” so the Fed reaches its inflation target in about a year and a half, allowing time for tighter policy to impact the economy, he said.
However, Musalem, who is not currently a voting member of the central bank’s rate-setting Federal Open Market Committee, would not comment on the Fed’s possible next steps or the estimated level the policy rate may need to reach to lower inflation.
But “earlier and incremental policy firming is better and less disruptive than later and larger and potentially more abrupt policy action” further in the future, he said.
Inflation “is not a risk. It’s there,” Musalem said, noting that even after stripping out the impact of oil and other supply-related factors, underlying inflation is running perhaps a percentage point above the Fed’s target and is “moving in the wrong direction.”
Little progress has been made recently in the battle to bring inflation back down to the 2% target. The Personal Consumption Expenditures Price Index, the Fed’s main inflation gauge, was at 3.7% on a year-over-year basis in July, compared to a recent low of 2.3% in April of 2025, as the Trump administration rolled out its plan for global import tariffs.
The shock to import prices was followed this year by the start of the US-Israeli war with Iran, which pushed up fuel costs globally, with the price of diesel hitting a record high recently. Prices for commodities like copper have also been rising, Musalem said, as an offshoot of the artificial intelligence investment boom.
Through it all, US domestic spending and growth have remained resilient — good news from one perspective, but an additional inflation challenge for the Fed.
“We have both strong demand forces and supply forces working themselves through the economy,” Musalem said.
‘LABOR MARKET IS NOT A SOURCE OF INFLATION’
The Fed last raised interest rates by a quarter of a percentage point last week and dropped a reference in its policy statement that attributed recent inflation “in part” to supply shocks, saying only that “inflation remains elevated.”
READ ALSO:Oil Prices Slide To 11-day Low On Hopes of US-Iran Diplomacy, Saudi Exports
The change reflects growing skepticism at the central bank that current price pressures are likely to fade over time without Fed action. Though things like tariffs and oil price increases were seen as potentially fleeting, one-off changes in the price level, their influence has proved more persistent than expected, with inflation now being driven by demand aspects as well.
“I think there’s a recognition that consumption and investment are growing at a very healthy, very strong clip, and at the same time the risks on the inflation side seem to have increased for a variety of reasons, including geopolitical forces,” Musalem said.
The St. Louis Fed chief, with the hawkish voice and not an official Fed guidance, said he views the current 3.75%-4.00% policy rate as “on the accommodative side,” meaning it is not yet high enough to restrict economic activity.
Investors currently expect the Fed to approve three more quarter-percentage-point rate hikes over the five policy meetings between now and April, with roughly even odds the central bank will hike again in October, on the eve of the US midterm elections. The median projection of Fed officials issued after last week’s meeting showed policymakers anticipate one more hike this year, with a near-even split over the need for another such move in 2027, a less aggressive outcome than investors currently anticipate.
Though tighter policy may be needed, Musalem said he did not think it would need to come at the cost of higher unemployment, or that it would boost the likelihood of a recession.
“The labor market is not a source of inflation. There’s not necessarily a need to slow the labor market down or to cool it to attain our inflation target,” Musalem said, with the job market “stable and balanced and around full employment.”
But he said he hoped businesses would scale back the pace of price increases that contacts in his Fed district say are on the horizon.
Firms are “reporting sharply higher non-labor input costs, in fuel and other raw materials, transportation, insurance, and skilled labor,” Musalem said. “They’re planning to raise their selling prices. … There is ample evidence that inflation is the principal problem we have right now.”
Indeed, MPC members had warned recently that 2027 election spending could flood the economy with cash, reverse the gains, and send food prices up again.
Also, CBN and the Federal Ministry of Finance, last week signed a Memorandum of Understanding (MOU) on Monetary-Fiscal Policy Coordination as part of efforts to strengthen economic stability.
CBN Governor, Olayemi Cardoso, signed on behalf of the apex bank, while the Minister of Finance and Coordinating Minister of the Economy, Mr Taiwo Oyedele, signed on behalf of the ministry in Abuja over the weekend.
Speaking at the event at the CBN headquarters, Cardoso said the deal represented a shared commitment to deepen collaboration between the two parties in the interest of the nation’s economy and the Nigerian public.
“Fiscal and monetary policies remain two important and complementary instruments for the management of a modern economy. While fiscal policy influences economic activity through government expenditure, taxation and borrowing decisions, monetary policy promotes price stability and financial system soundness through the management of liquidity, interest rates and monetary conditions. When these policies work in harmony, their combined impact is far greater than their individual efforts.” he said
The Electoral Act 2026 raised presidential spend limit to N10bn, donor cap to N500m . However, analysts say actual spend could be 10 times higher, and mostly dollarized, pressuring naira and food imports.
The Dilemma
According to the analysts, despite the Cooling, it is still very high:
– Headline: 15.39% YoY (July: 15.43%)
– Food YoY: 19.57% (July: 20.31%, Aug 2025: 25.30%)
– Food MoM: 1.02% vs 5.56% July — a 4.54pp drop.
– NBS basket: Palm oil, carrots, pepper, onions, cassava flour, beef, yam flour, fish, potatoes slowed
– Rural vs Urban twist: Urban MoM collapsed to 0.28% but Rural MoM _rose_ to 1.79% from 0.78% — shows logistics/insecurity still biting farms.
Rate at 26.5% after February cut. Analysts consensus for the meeting: HOLD because of energy shock and election liquidity. They further argue that in that environment, holding the rate is safer.
For those that favour rate cut, they argue that prime lending rate (currently 29.19%) will still come down making cheaper agric loans, more dry season farming, lower transport financing
But opponents say this will mean more naira in circulation + cheap credit + campaign cash, leading to demand-pull inflation. Traders in Mile 12 / Bodija will price it in immediately, spike in FX demand, imported rice, wheat, frozen chicken up, among others.
If they hold the rate, others argue, that, most likely, will Protect food disinflation, keeps naira stable (reserves at $49.49bn – $52.52bn)
The opponents say Farmers/SMEs will keep borrowing at 26.5%+, retail credit, which was only N199bn in April, regarded by them as, ‘too small.’