Emmanuel OchayiNigerians are set to receive the rebased Consumer Price Index (CPI) figures today from the National Bureau of Statistics (NBS). Many expect the updated data to reflect a decline in inflation, a key measure of price changes in the economy.
Why Is CPI Rebasing Important?
Countries update their CPI base year every 5 to 10 years to reflect shifts in economic structure and consumer behavior. This aligns with global standards under the System of National Accounts (SNA). The NBS has justified the rebasing by citing the substitution effect and evolving income dynamics, both standard considerations in inflation calculations.
Join our WhatsApp ChannelWill Inflation Reduce After Rebasing?
Analysts at FBNQuest predict that Nigeria’s headline inflation will remain high but may show some moderation after the CPI rebasing. This expectation is based on the high base effect from last year and adjustments in inflationary components within the inflation basket.
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Key Drivers of Inflation Moderation
Recent changes to the inflation basket suggest that the weight of essential items like food, non-alcoholic beverages, housing, electricity, gas, and other fuels has been reduced by 72.29%. This means their impact on the overall inflation rate will be lower.
What Has Changed in the Basket?
The number of items in the inflation basket has increased from 740 to 960. This expansion provides a broader measure of price changes across different goods and services.
Addition of New Items
A key update in the rebasing exercise is the introduction of “Insurance and Financial Services” to the divisional level of the CPI index. This brings the total number of divisions contributing to headline inflation from 12 to 13.
What Is the New Weight of Food in CPI?
Food has traditionally been the dominant factor in Nigeria’s inflation measurement. However, under the rebased CPI:
- The weight of food has been reduced from 51.8% to 40.1%.
- Other components like health, transport, and education now have greater influence.
This shift is notable since food accounts for 57% of household consumption. With its statistical weight reduced, future spikes in food prices will have a lower impact on overall figures.
Similarly, the combined weight of housing, water, electricity, gas, and other fuels has been cut from 16.7% to 8.4%, a 49.7% reduction.
What Is the New CPI Base Year?
The CPI base year is moving from 2009 to 2024. This update aligns Nigeria with other African nations that have undertaken similar exercises in recent years.
How Have Other Countries Been Affected by CPI Rebasing?
Several African nations, including South Africa, Ghana, and Kenya, have rebased their CPI over the years. The impact on it has varied:
- South Africa has rebased its CPI four times, most recently in 2021. Inflation declined by 0.2% after rebasing.
- Kenya saw a 1.5% decline in inflation post-rebasing.
- Ghana, however, recorded a 6.9% increase in inflation.
Historical data suggests that CPI rebasing does not always lead to lower inflation. For example:
- Uganda’s inflation rate increased from 2.3% to 2.71% after rebasing from 2009 to 2021.
- Past rebasing exercises in Kenya and Nigeria have also shown mixed results.
What to Expect from Nigeria’s Rebased Inflation Figures
While some expect a decline due to statistical adjustments, others caution that real economic factors, such as exchange rate fluctuations and supply chain disruptions, will continue to shape price levels. The NBS’s official figures will provide clarity on how the rebased CPI affects Nigeria’s inflation outlook.
Emmanuel Ochayi is a journalist. He is a graduate of the University of Lagos, School of first choice and the nations pride. Emmanuel is keen on exploring writing angles in different areas, including Business, climate change, politics, Education, and others.
