As Nigerians await the rebased Consumer Price Index (CPI) figures to be released by the National Bureau of Statistics (NBS) today, many are expecting the new figure to reflect a deceleration in price levels.
The following are things to know ahead of the rebased figure;
Why does rebasing the CPI matter?
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.
The NBS has justified these changes by citing the substitution effect and evolving income dynamics—a standard rationale in inflation calculations.
Will there be a reduction in inflation rate?
Analysts at FBNQuest said that while it expects Nigeria’s headline inflation to remain elevated, we expect the post-rebasing CPI exercise to show a moderation in the headline reading in the month of January.
Our expectation is premised on the high base effect from last year and the reduced impact of inflationary components on Nigeria’s inflation basket due to the re-adjustment of the CPI weighting.
What are the likely drivers of the moderation in inflation ?
With the recent reshuffling of the inflation basket, the combined influence of food, non-alcoholic beverages, housing, electricity, gas, and other fuels has been suppressed by 72.29 percent, effectively diminishing their impact on inflation.
Read also: Nigeria’s data integrity on the line ahead rebased GDP, inflation
What are the changes made to the inflation basket?
The constituents of the inflation basket are expected to expand from 740 to 960.
What new item was added to the divisional level?
The contributions of items on the divisional level to the headline index has been increased to 13 from 12, with the addition of Insurance and financial services.
What is the weight of food in the rebased figure ?
Under the new methodology, the weight of food in the inflation basket has been slashed from 51.8 percent to 40.1 percent. At the same time, other components such as health, transport, and education have seen their influence increase. This shift is significant. Food accounts for 57 percent of household consumption, yet its statistical weight has been diminished, muting its impact on the inflation rate.
Future spikes in food prices will therefore exert less upward pressure on inflation figures than before.
Likewise, the combined weight of housing, water, electricity, gas, and other fuels—essentials for most households—has been cut from 16.7 percent to 8.4 percent, a 49.7 percent reduction.
Read also: Nigeria’s CPI rebasing: What to expect and why it may not substantially affect inflation
What is the base year for CPI rebasing ?
The current 2009 base year will be replaced with 2024 for the new CPI computation framework.
What countries have undergone CPI rebasing?
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.
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 percent after rebasing, while Kenya’s inflation decreased by 1.5 percent. In Ghana however, it rose by 6.9 percent.
Historical data suggests that not all countries that rebased their CPI saw inflation decline. Uganda, for instance, experienced an increase from 2.3 percent to 2.71 percent after shifting its CPI base year from 2009 to 2021. Kenya and Nigeria have had similar experiences in past rebasing exercises.
Join BusinessDay whatsapp Channel, to stay up to date
Open In Whatsapp
