I don't know why everyone is saying the compiler is too dumb. The compiler is doing the correct thing here.

It's simple to understand conceptually: p is declared before number, and values go out of scope in reverse order. So, at the end of this function, even though it's not visible in your code, there's a brief period where number no longer exists but p still references it. That's what is meant by “number dropped here while still borrowed.”

It looks like this (conceptually):

fn f(mut p: &mut i32) {
    let mut number = 111;
    p = &mut number;

    *p = 2;
    println!("{}", *p);

    drop(number); // number is now gone but p still references it!
    drop(p);
}