Nigeria’s inflationary landscape has witnessed a dramatic shift following the National Bureau of Statistics’ (NBS) recent rebasing of the Consumer Price Index (CPI).
According to the latest data, headline inflation fell sharply from 34.8 per cent in December 2024 to 24.48 per cent in January 2025, while food inflation dropped from 39.8 per cent to 26.08 per cent, and core inflation eased from 29.28 per cent to 22.59 per cent.
While this may suggest a significant reduction in price pressures, many have questioned if truly prices are going down, or the latest inflation figure is merely a statistical illusion, as analysts opined that prices remain high despite the statistical realignment.
The NBS rebasing exercise updated the base year from 2009 to 2024 and expanded the number of tracked product varieties from 740 to 934, aligning with the 2018 Classification of Individual Consumption According to Purpose (COICOP). The rebasing, many agreed, was long overdue, as consumption patterns have significantly evolved over the past 15 years.
‘Govt Must Not Get Comfortable With Rebased Inflation Figure’
According to NBS, the primary objective was to better reflect contemporary consumption patterns and improve inflation measurement accuracy. While the new methodology provides a more current snapshot of price movements, it does not indicate that actual prices are falling. It said that instead it modifies the reference point against which inflation is measured, resulting in a lower statistical reading rather than a tangible reduction in living costs.
One key factor behind the deceleration in inflation is the strong base effect. Inflation rates in 2024 were exceptionally high, driven by economic policy shifts such as fuel subsidy removal and currency devaluation. As a result, when inflation is measured year-on-year from the new base period, the percentage increase appears significantly lower.
A closer look at the revised CPI components reveals that food inflation, which previously accounted for over 50 per cent of the inflation basket, now holds a lower weight of 40 per cent. This reallocation reduces the impact of food price volatility on the overall inflation rate. Additionally, the rebased core inflation figure, which excludes volatile food and energy prices, reflected persistent cost pressures in essential services, including housing, healthcare, and utilities.
Despite the headline figures suggesting a decline, the month-on-month (MoM) inflation indicated a different situation. The newly rebased MoM inflation rate for January 2025 stood at 10.68 per cent, a significant jump from December’s 2.44 per cent. This suggested that price increases have not abated in absolute terms and that inflationary pressures remain strong in the short term.
According to the chief executive of the Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, the strong base effect on the inflation figures given the high inflation regime in 2024, had a considerable effect on the year-on-year inflation outcomes.
Stating that it is important to clarify that a drastic reduction in inflation figures is not tantamount to a reduction in price level, he said, inflation reduction simply means a reduction in the rate of increase in the general price level, not a reduction in price.
“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 stressed.
Analysts at Afrinvest West Africa noted that a more accurate gauge of current inflationary pressures lies in the MoM inflation rate 10.68 per cent in January 2025, a significant jump from December’s 2.44 per cent. This increase, however, is largely attributed to the statistical effects of the rebasing and should not be a cause for alarm.
Afrinvest West Africa analysts added that, while the rebased methodology was long overdue, it introduces artificial downward pressure on reported inflation figures due to the lower base year indices. This means that, for much of 2025, year-on-year inflation readings may present an optimistic narrative that does not fully capture the real burden on consumers. The more reliable gauge of inflationary trends will be month-on-month readings, which reflect short-term price fluctuations more accurately.
The analysts highlighted that the MoM jump is “mainly induced by the statistical effects of the rebasing exercise, as against the direction of price reality in the period. We expect the MoM readings to “begin to realign and better reflect reality beginning from February. However, we hold that the y/y reading may reflect false narrative for the most part of 2025 due to artificially low base year indices.”
Analysts at Cowry Asset Management warn that the sustainability of this inflation trajectory remains uncertain, particularly as upcoming policy adjustments, such as the recently approved 50 per cent increase in telecom tariffs, could reignite inflationary pressures.
To him, ‘while the rebasing exercise offers a statistical reprieve, inflationary pressures remain elevated due to persistent structural challenges and policy-driven cost adjustments.’
For businesses and households, the key concern remained the high cost of goods and services. Energy costs, import expenses, and interest rates continue to strain economic activity. While some price reductions have been observed in select sectors, such as petrol, diesel, and pharmaceuticals, these have yet to translate into widespread consumer relief.
The hope is that these reductions will be sustained throughout 2025, leading to a more meaningful disinflationary trend rather than a mere statistical adjustment.
Analysts at Comercio Partners noted that the rebasing exercise, while improving the accuracy of inflation tracking, compresses the time horizon for price comparisons. The analysts pointed out that food and energy prices, historically major inflation drivers, now carry a reduced weight in the calculation, tempering their impact on the overall inflation metric.
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. The good news, however, is that we are beginning to see indications of such reductions in PMS, diesel, some food items and pharmaceutical products. It is hoped that this trajectory will be sustained in the course of the year.”
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