Oil shock from US-Israeli campaign halts Nigeria’s disinflation streak, pushes inflation to 15.93% – Meristem report

Nigeria’s 11-month disinflation streak ended in March 2026 after a fresh wave of global energy disruptions pushed headline inflation to 15.93 per cent in May. This is according to the Meristem 2026 Half-Year Outlook, tagged “Stability Meets Uncertainty, Reprising Risks, Sustaining Growth,” released on Wednesday.

What caused the reversal

The sudden reversal is tied to “Operation Epic Fury,” a 38-day joint United States-Israeli military campaign against Iran that began on 28 February 2026. The operation led to the effective closure of the critical Strait of Hormuz, triggering a massive global energy shock that drove Brent crude prices above $110 per barrel at its peak.

“The global oil shock trickled down into higher domestic fuel and transportation costs,” market analysts noted in the report, highlighting how international energy volatility quickly transmitted into the local Nigerian economy.

GDP growth and reserves hit highs

Despite the inflationary pressure, Nigeria’s Gross Domestic Product expanded 3.89 per cent year-on-year in the first quarter of 2026, marking its fastest Q1 growth pace in a decade. The expansion was driven by vibrant non-oil sectors, including telecommunications and financial services.

A surging trade surplus and robust portfolio inflows also pushed Nigeria’s foreign reserves past the $50 billion milestone in June, a level not seen since 2009.

Oil production lags behind budget target

The domestic oil sector struggled to fully capitalise on high global prices. Maintenance activities at major facilities, such as the Bonga field, kept first-half crude production at a crawl. Output gradually recovered to 1.70 million barrels per day in May, but remained below the Federal Government’s budgetary benchmark of 1.84 million barrels per day.

Global central banks pivot back to rate hikes

The resurgence of inflation in Nigeria mirrors a broader global trend. The era of monetary easing has faced abrupt interruptions, with the European Central Bank and the Bank of Japan delivering surprise 25-basis-point rate hikes to combat energy-driven price increases.

With central banks shifting to a “higher for longer” interest rate stance to contain reignited inflation fears, the report notes that Nigerian policymakers face the delicate task of balancing robust domestic growth against compounding, energy-induced living costs in the second half of the year.

For Nigerian consumers and businesses, the return of inflation means higher fuel and transportation costs are likely to persist, squeezing household budgets and raising operating expenses even as the broader economy shows signs of strength.