Why economies recover before people do

For much of the past few months, the news flowing out of Nigeria’s economy has appeared steadily more encouraging than it did a year ago. Inflation has fallen sharply from the alarming levels reached after the removal of petrol subsidies and the liberalisation of the foreign exchange market, the naira has become more stable, external reserves have strengthened, foreign investors have begun to return, capital inflows have improved and international credit rating agencies have acknowledged the country’s progress with upgrades to its sovereign outlook. This week, the Central Bank of Nigeria reinforced the impression that the economy is entering a calmer phase by leaving its benchmark interest rate unchanged at 26.5 per cent, where it has remained since February, signalling that policymakers believe the emergency phase of monetary tightening may be giving way to one of cautious consolidation. Yet beyond these encouraging indicators lies a reality that millions of Nigerians know all too well. Food remains painfully expensive, transport fares continue to stretch household budgets, borrowing has become prohibitively costly for businesses, rents have not become more affordable, and wages have generally failed to keep pace with the rising cost of living. To many families, the economy does not feel as though it is recovering at all. How, then, can economists speak of improving conditions while ordinary citizens continue to struggle? The answer lies in one of the most important, and perhaps least understood, principles of economics: economies almost always recover before people do. Part of the confusion stems from the meaning of inflation itself. Whenever the National Bureau of Statistics announces that inflation has fallen, many Nigerians understandably expect prices to begin falling as well. That is not what inflation measures. Inflation tells us how fast prices are rising, not whether prices are returning to where they once were. Nigeria’s inflation rate has indeed recorded remarkable progress over the past 18 months, falling from 34.8 per cent in December 2024 to 14.45 per cent by November 2025 before settling into what now appears to be a stubborn plateau. Inflation rose to 15.93 per cent in May before easing marginally to 15.91 per cent in June. Those figures represent a significant policy achievement because they show that the pace of price increases has slowed dramatically. They do not, however, mean that food, transport, medicines, school fees or housing have become cheaper. A bag of rice that doubled in price during the inflation surge does not become less expensive because inflation falls; it simply continues becoming more expensive at a slower pace. That distinction matters because prices adjust much faster than incomes. When inflation accelerates, households immediately pay more for almost everything they consume, but salaries, pensions and business earnings rarely increase with the same speed. Even after inflation begins to moderate, families continue living with the cumulative effect of those higher prices while waiting for their incomes to catch up. This is why economic recovery often feels invisible during its early stages. The statistics begin improving long before the benefits reach kitchen tables and neighbourhood markets. The Central Bank’s interest-rate policy tells a similar story. Faced with surging inflation and severe exchange-rate instability, policymakers embarked on one of the most aggressive tightening cycles in Nigeria’s history, eventually raising the benchmark policy rate to 26.5 per cent. The medicine was painful but necessary. Higher interest rates helped restore confidence in financial markets, reduced pressure on the naira and contributed to the sharp decline in inflation. Yet they also made borrowing more expensive, discouraged investment and increased financing costs for businesses whose expansion ultimately creates jobs and raises incomes. Nigeria’s economic conversation has, therefore, shifted from fighting a crisis to managing a recovery. Inflation has slowed, the exchange rate has become more predictable, external reserves have risen to their highest level since 2009 and investor confidence has strengthened. Yet economic growth remains constrained by problems that monetary policy alone cannot solve. Food prices continue to reflect insecurity in farming communities, poor transport infrastructure, high logistics costs, inadequate storage facilities and chronic electricity shortages. These are structural challenges that no adjustment in interest rates can fix. The World Bank recently warned that persistent inflation has pushed millions more Nigerians into poverty despite improvements in several macroeconomic indicators. That warning reminds us that macroeconomic stability and household prosperity are not the same thing. Lower inflation, stronger reserves and renewed investor confidence are essential because they reduce the risk of deeper economic crises, bu

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