According to the National Bureau of Statistics, the annual inflation rate in January fell to 24.48% from December’s 34.80%. This dramatic drop, however, is less a reflection of cooling price pressures and more a result of a statistical adjustment — a process known as rebasing.
What is Rebasing and Why Now?
Rebasing is the process of updating the basket of goods and services used to calculate the Consumer Price Index (CPI). In Nigeria’s case, the reference period was shifted from 2009 to 2024, and the items within the basket were reweighted to better reflect current consumption patterns. Over the years, consumer habits have evolved significantly — what was once a staple purchase may have been replaced by digital services, newer food products, or different household items. Rebasing adjusts the statistical lens through which inflation is measured, ensuring that the data remains relevant and accurate.
With Nigeria’s economic landscape having changed significantly over the past decade, continuing to rely on an outdated basket could misrepresent the true inflationary pressures faced by consumers. Moreover, with technical and financial support from international institutions like the World Bank, the International Monetary Fund, and Nigeria’s Central Bank, the country was finally able to undertake this long-overdue update.
The Impact on Inflation Numbers
The immediate effect of the rebasing was a notable 10% drop in the headline inflation figure — from 34.80% to 24.48% year-on-year. The rebased CPI also introduced new special indices to enhance inflation tracking, including a Farm Produce Index of 10.50 percent, Energy Index of 8.9 percent, Services Index of 10.41 percent, Goods Index of 10.79 percent, and Imported Food Index of 11.47 percent.
However, this lower figure is not an indication that market prices have decreased. Rather, it reflects a change in how the rate of price increases is calculated. By updating the base period, the rebasing essentially resets the point of comparison, which in turn affects the annual rate of price change. This means that while the reported inflation rate is lower, the actual prices of goods and services in markets have not necessarily dropped.
Inflation Rate vs. Prices: What You Should Know
A drop in the inflation rate does not equate to a reduction in the cost of living. The CPI measures the rate of change in prices over time rather than the absolute level of prices. In other words, while the pace at which prices are rising may have slowed according to the new calculation, the current prices in the market remain largely unchanged. This distinction is crucial; a lower inflation rate might offer a more accurate picture of the economy’s health, but it does not automatically mean that shoppers will suddenly experience lower bills at the grocery store. Ultimately, while the recalibrated inflation rate might suggest a more favorable economic outlook, it remains a statistical adjustment rather than a direct improvement in the cost of living. Still, the new CPI methodology improves the credibility of Nigeria’s inflation data, making it more reflective of current economic conditions and in line with global best practices.
Statistics Source: NBS Report on new inflation rate in Nigeria.
