Rebased inflation rate raises concerns over true cost of living

Onome Amuge

Nigeria’s inflation rate, which had been experiencing a sustained upward trajectory in recent months, witnessed a dip in January. The decline, revealed in the latest Consumer Price Index (CPI) report from the National Bureau of Statistics (NBS), is primarily attributed to the agency’s decision to re-base the index.

The NBS rebasing initiative, a periodic recalibration of its measurement tool to account for changes in consumer spending patterns, revealed a different inflation scenario, sparking optimism among Nigerians who speculate that Nigeria’s stubborn inflation may have finally been tamed.

The rebased CPI showcased a steep fall in headline inflation to 24.48 percent in January 2025 from 34.80 percent in December 2024.

A  closer analysis of the newly rebased CPI basket revealed substantial changes in some of its key components. One notable shift is the drop in food inflation, which is closely monitored as a crucial indicator of living costs. Food inflation declined to 26.08 percent in January 2025, under the new methodology, compared to the old methodology’s 39.84 percent recorded in December 2024

Meanwhile, urban inflation remained at 26.09 per cent, while rural Inflation registered a slightly lower rate of 22.15 per cent.

The rebased CPI not only revealed new inflation rates but also brought with it a range of specialised indices to aid in tracking inflation with greater precision.

These specialised indices include a Farm Produce Index, which captured inflation of 10.50 per cent, an Energy Index that registered 8.9 percent, a Services Index with 10.41 per cent, a Goods Index that captured inflation of 10.79 per cent, and  an Imported Food Index at 11.47 per cent.

Although the downward trend might seem like a relief to Nigerians who have been groaning under the weight of a persistent inflationary pleasure, economists urge caution, pointing out that the decrease is primarily due to the statistical rebasing, rather than actual reduction in the country’s inflation rate, including food prices.

Analysts interpret this as a warning that inflationary pressures persist. The reality, they argue, is that Nigeria’s battle with inflation is far from won and likely to be an ongoing one.

Commenting on the rebased inflation indices, the Lagos Chamber of Commerce & Industry (LCCI) stated that the decline in inflation from 34.8 percent to 24.48 percent does not indicate a sharp fall in prices but a revised way of calculating inflation. According to the Chamber, despite the lower reported rate, inflation remains high, meaning prices are still rising, just at a slower pace.

Chinyere Almona, the director general of LCCI, in a statement, emphasised  that lower inflation rate may seem positive, but it does not automatically improve living standards. This, she pointed out, is as prices are still rising, wages remain stagnant, and unemployment is high, keeping real incomes under pressure.

“The rebased inflation rate only reflects a different measurement, not an actual drop in prices. For most Nigerians, essential costs like food and transportation remain high, meaning living conditions will not improve unless there is a real reduction in the cost of necessities,” the LCCI DG stated.

Almona, while acknowledging the importance of the rebased inflation rate in providing policymakers with more accurate data, warned that this statistical recalibration is not a panacea for the rising cost of living.

According to Almona, to tackle the issue of inflation, which remains a pressing challenge for many households, the government must adopt more hands-on approaches and implement targeted policies that address specific areas of inflationary pressure, with the ultimate goal of stabilising the economy and improving the quality of life for Nigerians.

“One key priority is tackling food inflation, which accounts for over 50% of price increases. Policies should focus on boosting agricultural productivity, reducing post-harvest losses, and improving transportation and storage infrastructure to ensure food affordability,” she stated.

The Centre for the Promotion of Private Enterprise (CPPE) also shared its sentiment on the rebased inflation figures announced by the NBS.

According to the CPPE, the deceleration of the headline inflation rate from 34.8 percent in December 2024, to 24.48 percent in January 2025, as well as the sharp drop in food inflation from 39.8 percent to 26.08 percent, and the decline in core inflation from 29.28 percent to 22.59 percent, were in line with expectations, given the update of the CPI base year from 2009 to 2024.

The business advocacy organisation explained further, “There is additionally a strong base effect on the inflation figures given the high inflation regime in 2024, which had a considerable effect on the year-on-year inflation outcomes.

“Besides, transaction demand in December 2024 was typically much more intense because of the festivities while the spending momentum in January

was predictably much slower because of lower disposable incomes following intense spending in the previous month. These are some of the

explanatory factors for the sharp deceleration in the inflation numbers in January 2025.”

Muda Yusuf, the CEO and Founder of the Centre for the Promotion of Private Enterprise (CPPE), provided a clarification regarding the implications of the reduced inflation figures.

Yusuf emphasised that while the decline in inflation rates announced by the NBS might seem like a victory against rising prices, it is essential to understand that inflation reduction does not imply a reduction in actual prices. Rather, it indicates a deceleration in the rate at which prices are increasing, which is still an important economic development but does not necessarily lead to a decrease in the cost of living.

“The drastic deceleration in inflation should therefore be cautiously celebrated. The reality of high prices has not changed and remains a major factor in the cost of doing business, cost of living and poverty equation in the country.

“Households and firms are still concerned about high energy costs, the strength of the naira, high interest rate, cost of imports, transportation costs and insecurity. It is hoped that the government will recalibrate its strategies to address these major cost drivers,” he stated.

According to Yusuf, what businesses and households desire at this time is a reduction in the general price level from the incredibly high levels in 2024 to a substantial moderation in 2025, which is defined in technical parlance as disinflation.

In spite of the current challenges, the CPPE CEO noted that Nigerians are starting to witness signs of falling prices in critical sectors, providing a glimmer of hope for the future.

He pointed out that reduced prices have been observed in Petrol Motor Spirit (PMS), diesel, specific food items, and pharmaceutical products, signaling a possible downward trend in prices across various industries.

Paul Alaje, CEO of SPM Professionals, also shared his sentiment on the CPI recalibration issue by clarifying that the reduction in inflation rates is largely a statistical realignment rather than an improvement in affordability of essential goods and services.

According to Alaje, the seemingly positive inflation figures reported by the NBS do not necessarily translate to tangible benefits for Nigerians struggling with high prices, given that the changes are primarily a result of a methodological adjustment rather than a substantial decrease in the actual cost of living.

Alaje cautioned Nigerians against interpreting the newly rebased inflation figures as a precursor to a sweeping drop in market prices. He added that while the inflation data has changed, the fundamental economic issues affecting the country remain unchanged.

“It’s not a reduction in inflation. It will be wrong for people to say inflation dropped from 34 per cent to 24 percent. That would be a misleading narrative. If inflation truly drops, we should see the reflection in prices, but that is not what we have seen.

“What the Bureau of Statistics has done (today) is not to say that inflation dropped. The Bureau is saying: ‘We are no longer going to reference 2009 as the base year; we will now start referencing 2024.’ Definitely, you’ll get a different (lower) figure,” the economist stated.