Will Nigeria’s CPI update reflect reality?
On January 9th 2025, the National Bureau of Statistics in collaboration with the Nigerian Economic Summit Group (NESG) held a workshop on rebasing Nigeria’s Gross Domestic Product (GDP) and Consumer Price Index (CPI). Rebasing means updating the methodology of calculating a country's economic indices in order to reflect current economic reality.
A lot has changed for Nigerians economically over the last 18 months. The prices of food, transportation, accommodation, and other basic survival needs have gone up at an accelerating pace. People are adjusting by either consuming less or going for lower quality items to meet their physiological needs. This was what informed the decision by the NBS to update its method of calculating inflation, according to Prince Adeyemi Adeniran, the Statistician-General of the Federation.
According to him: “The rebasing is a vital exercise that ensures our economic indicators are current and accurate reflections of the economic realities. As economies evolve, new industries emerge, and consumption patterns shift.” The question then becomes: To what extent will this rebasing exercise reflect the real problem of rising costs and inflationary pressures?
Ever rising costs
Nigeria’s economic environment has been affected by the COVID-19 pandemic and different policies from the removal of subsidies to the devaluation of the currency. Since 2009, the current base year for calculating the inflation rate, several economic policies have emerged and there have been shifts in production and consumption due to those policies. Throughout 2024, for instance, there was a continuous rise in the average price of goods and services. The CPI began 2024 at 660.8 and rose consistently to 847.1 in November 2024, an increase of 28%. This shows how the standard of living of the average Nigerian has been impacted due to constant increases every month.
Due to the rebase, the NBS will release two inflation reports this month, one of which is the CPI for December 2024 which is expected on Wednesday January 15th. When these updated methodologies are factored in, some analysts expect the inflation figure to come down without much change in people's purchasing power.
Old CPI Weights VS Proposed CPI Weights
Meanwhile, stakeholders are examining the new weights to be given to each driver of CPI according to their contribution to inflation in recent times. Currently, food and non-alcoholic beverages were the major drivers of inflation with 51.8%. Now, the proposed weight is 40.1%, giving priority to other items such as housing, restaurants and accommodation services that have been observed to be important contributors to inflation. This contextualises the fact that foods are becoming more expensive and Nigerians can hardly sacrifice their income to purchase food in the market. So, in that regard, they chose the alternatives, perceived to be less expensive, such as eating outside in places like restaurants, bukas and hotels, which drew the attention of economists and analysts in September 2023.
These changes between the current CPI weights and proposed weights reflect a shift in how Nigerians are spending their money since 2023, the weight reference year, with increased spending on transportation and restaurant and accommodation services. Another important part of this CPI rebase is the increase in the number of items in the CPI basket from 740 to 960. Even though NBS has not officially released a comprehensive list of both the current and the proposed items, the rebased CPI is supposed to capture the accurate spending of Nigerians by looking at other items Nigerians have been spending on.
One potential problem with the new weights is that Nigerians spend the bulk of their income on food. Some estimates put that expenditure as high as 59%. That reality challenges the new 40% weight given to the ‘Food and non-alcoholic beverages’ aspect of the CPI. Since many Nigerians have been pushed into poverty due to rising inflation and the lingering impact of COVID-19, that average could be higher. This suggests that such a downward shift in the weight risks decoupling the measure from the reality of Nigerians.
Some continental examples
Other African countries, such as South Africa, Ghana, and Kenya have rebased their CPI calculation in the last few years. Take South Africa for example, the country has rebased its CPI four times: from 2000, 2008, 2012, 2016, to the current base year, 2021. According to the System of National Accounts (SNA), countries are expected to update their base year every 5 to 10 years to reflect changes in the structure of the economy or consumer behaviour.
Looking at the data, rebasing has proven to effect a little change in inflation rate before and after rebasing. For instance, the year-on-year inflation rate in South Africa decreased by 0.2% after rebasing, while Kenya’s inflation decreased by 1.5%. In Ghana however, it rose by 6.9%.
It is important to note that this does not really influence prices, rather it shows how the new items are affecting inflation. The change after the rebasing in Ghana did not change prices and similarly, the proposed update to Nigeria’s CPI will only be felt by the change in the rate and not in the real impact on the ground.
An academic exercise?
We now come to the question of the utility of the exercise itself. According to one analyst speaking on the impact of the rebase on Nigeria's economic growth, the process is more ‘academic than practical,’ citing that the new methodology that “drove our unemployment rate down from 30% to 4% did not solve Nigeria's unemployment situation, as there are still many millions of unemployed Nigerians, young and old alike”
As such, there is the chance that this CPI update merely becomes academic and becomes disconnected from the daily reality of Nigerian consumers. In that scenario, it could go the way of the unemployment rate that is now rarely quoted because no one believes it.
While a statistic does not affect reality, it should certainly hope to reflect that reality. The hope is that the rebasing exercises will do that.
Thanks for reading this edition of Pocket Science. It was written by Salako Emmanuel and edited by Joachim MacEbong.