Nigeria's CPI Rebasing and Monetary Policy Developments
Executive Summary
Nigeria has undergone a significant economic policy shift with the rebasing of its Consumer Price Index (CPI) and the Central Bank of Nigeria's (CBN) decision to maintain its core monetary policy rates. This brief analyzes these developments and their implications for Nigeria's economy.
Policy Context ?
The Consumer Price Index (CPI) is a critical economic indicator that measures changes in the average prices of goods and services over time, serving as a key indicator of inflation and a basis for wage, contract, and rent adjustments. It also informs monetary policy decisions.? CPI is calculated in two stages: first, by comparing current prices to a base year to determine relative price changes (elementary indices); second, by aggregating these changes into a pre-determined weighted index based on item importance. This approach ensures accurate tracking of inflation trends for economic planning.
CPI Rebasing and Inflation Metrics
Nigeria’s National Bureau of Statistics (NBS) has implemented a rebasing of the Consumer Price Index, adjusting the price reference period (base year) from 2009 to 2024 and the weight reference period to 2023 based on its latest Nigerian Living Standards Survey (NLSS). The rebasing also included digitization of the price data collection, an expansion of the CPI basket to 960 items from 740 items, and the introduction of additional inflation indices - Farm Produce Index, Energy Index, Services Index, Goods Index, and Imported Food Index, into its CPI computations. It should be noted that the rates for these new indices in the January CPI report are not year-on-year rates like the traditional CPI rates, as they are newly introduced.
The CPI rebase has resulted in a statistical decline of the headline inflation rate in Nigeria, to 24.48% in January 2025 from 34.80% in December 2024. Food inflation, a key driver of headline inflation in 2024, also saw a rate reduction to 26.08% from 39.84% in December 2024. Similarly, the rebased core index, excluding volatile agricultural products and energy prices, declined from 29.28 percent to 22.59 percent. This change primarily reflects a methodological shift rather than price relief from reduced inflationary pressures.
Understanding the Drop
A key factor in the mathematical decline of the inflation rate is the weighted index adjustment for key inflation drivers—Food and Household Expenditure. Under the new methodology, the weight of food inflation was reduced from 51.8% to 40.1%, as meals consumed outside the home were reclassified under Restaurants and Accommodation Services, increasing its weight from 1.2% to 12.9%. Similarly, Housing, Water, Electricity, Gas, and Other Fuels declined from 16.7% to 8.4%, while Household Maintenance dropped from 5.0% to 3.0%. In contrast, categories impacting household income saw weight increases, including Education Services (3.9% to 6.2%), Health (3.0% to 6.1%), and Transport (6.5% to 10.7%).
Source: National Bureau of Statistics
Analysis and Implications
Nigeria's recent Consumer Price Index (CPI) rebasing has revealed a more nuanced but equally concerning picture of the country's inflation challenges. While the headline inflation rate shows a statistical decline, it has brought to light previously understated inflationary pressures from other sectors of the economy, as evidence in the shorter gap between headline and core inflation, from 5.52% to 1.89% post-rebasing. The new figures also show a clear urban-rural divide, with urban areas experiencing higher inflation at 26.09% compared to 22.15% in rural areas, highlighting the disproportionate impact of housing and transportation costs on city dwellers.
Despite the statistical adjustments, the underlying economic challenges remain stark. Though mathematically lower at 26.08%, food inflation remains a primary concern for Nigerian households. The core inflation rate of 22.59% reveals significant price pressures across non-food essentials, including housing, healthcare, and transportation services. This broader perspective on inflation suggests that while the measurement methodology has changed, the economic headwinds faced by average Nigerians persist.
The rebasing exercise has exposed the need for a more comprehensive approach to tackling inflation. Rather than focusing solely on food prices, policymakers must now address the multiple drivers of inflation across various sectors. This includes implementing targeted interventions in agriculture and logistics, developing effective urban housing policies, improving mass transit systems, and managing foreign exchange pressures.
Monetary Policy Implications
With this development, the headline inflation rate of 24.48% now stands below the Monetary Policy Rate (MPR) of 27.50%, signaling positive real rates. With this trend, the CBN would find it difficult to raise MPR.
?As the decline is as a result of the CPI rebasing rather than an improvement in macroeconomic conditions, the Central Bank of Nigeria's (CBN) Monetary Policy Committee (MPC), at its 299th meeting, unanimously voted to maintain the MPR at 27.50%. This decision marks a strategic shift following six consecutive rate hikes in 2024, reflecting a deliberate pause to evaluate the impact of previous adjustments and the economy’s response to the rebased index while maintaining a balance between price stability and economic growth.
Economic Outlook
?Conclusion
The combination of CPI rebasing and steady monetary policy rates represents a significant shift in Nigeria's economic management approach. While these developments provide a more inclusive picture of the economy, its success will depend on continuous capture of relevant factors shaping changes in the index and careful monitoring of economic indicators in the coming months.
The success of this rebasing exercise will ultimately be judged not by the mathematical adjustments it introduces but by how well it enables policymakers to understand and address the complex inflationary pressures affecting Nigeria's economy. As the country adapts to this new measurement framework, the focus must remain on implementing fundamental economic reforms to deliver meaningful improvements to households.