Nigeria’s inflation rate has sharply declined from 34.80% in December 2024 to 24.48% in January 2025, according to new data from the National Bureau of Statistics (NBS). While this may seem like a major economic improvement at first glance, the reality is more technical: this drop is primarily due to a rebasing of the Consumer Price Index (CPI) rather than a fundamental shift in price movements.
But what does this mean for the economy? And how does it relate to the broader concept of GDP rebasing?
CPI Rebasing: A Technical Adjustment, Not an Economic Miracle
Rebasing the CPI means updating the basket of goods and services used to measure inflation to better reflect current consumer spending patterns. Before this adjustment, Nigeria’s CPI was based on a 2009 reference year, meaning it tracked price changes against an outdated economic structure. The new CPI uses 2024 as its base year, capturing a more accurate picture of household spending habits, including the rise of digital services, new household consumption trends, and evolving food choices.
By updating the relative weights of different items in the inflation calculation, the rebasing automatically lowers the reported inflation rate, even if actual prices in the economy have not significantly changed.
Rebased GDP vs. Rebased CPI: Similar Methods, Different Impacts
A similar rebasing process is sometimes applied to Gross Domestic Product (GDP) calculations. GDP rebasing involves updating the base year used to measure the economy’s size and structure, often leading to a significant increase in reported GDP as previously undercounted sectors, such as fintech, e-commerce, and creative industries are incorporated.
However, while GDP rebasing inflates the size of the economy on paper, CPI rebasing can make inflation appear lower by reflecting a broader and more representative set of goods and services in the price measurement.
Here’s the key difference:
- GDP rebasing updates the economic size and sectoral contributions. When Nigeria last rebased its GDP in 2014 (from a 1990 base year to a 2010 base year), the economy’s size jumped by 89% overnight, revealing a much larger services sector than previously estimated.
- CPI rebasing updates the weight of goods and services used to track inflation. By incorporating a more modern spending pattern, inflation appears lower, even if purchasing power remains weak.
Both are statistical adjustments, not economic policy interventions.
The Political and Economic Implications
A reported decline in inflation could lead policymakers to slow down interest rate hikes, believing inflation is moderating. However, if actual price pressures remain strong, especially in key sectors like food and transportation, the central bank risks misjudging the situation.
For the average Nigerian, a lower reported inflation rate does not necessarily mean relief from high food prices or expensive transportation costs. If real incomes continue to lag behind rising prices, the impact of statistical adjustments will feel largely cosmetic.
Foreign investors tracking inflation trends MAY see the lower figure as a sign of improving economic stability, potentially boosting confidence in Nigeria’s markets. However, savvy investors will dig deeper into the methodology change rather than take the headline figure at face value.
A More Accurate Picture, But Not a Policy Fix
Nigeria’s lower inflation rate is a result of a necessary and overdue statistical update, not an immediate improvement in economic fundamentals. While the rebasing gives policymakers a better tool to measure inflation trends going forward, it does not address the real economic pressures facing Nigerians, such as exchange rate volatility, supply chain disruptions, and persistent food inflation. In essence, this is a clarification of reality, not a change in reality.
The next big question: Will the Central Bank of Nigeria respond to this new data by adjusting its interest rate policies, or will it remain cautious, knowing that cost pressures are still strong despite the statistical drop in inflation? That will be the true test of how much impact this rebasing has.
Explainer Box: Understanding CPI Rebasing and Inflation Trends
CPI rebasing means updating the way inflation is calculated by changing the “base year” used for comparisons. Think of it like updating your playlist to reflect the latest hits instead of relying on songs from a decade ago. Before the rebasing, Nigeria’s inflation was measured against prices from 2009, which no longer reflected today’s spending habits. Now, the new base year is 2024, making the inflation data more relevant.
The inflation rate dropped not because prices fell, but because the calculation method changed. The basket of goods used to track inflation was updated, and some items now carry different weights. This means inflation now reflects a more realistic mix of what Nigerians actually spend money on today, such as increased mobile data usage, transport costs, and new food preferences.
GDP rebasing is another type of update, but instead of tracking inflation, it adjusts the way the size of the economy is measured. The last time Nigeria rebased its GDP (in 2014), the economy suddenly appeared much bigger—simply because industries like fintech and Nollywood, which weren’t properly counted before, were added to the figures.
Does This Mean Prices Are Lower? no. It just means inflation is now being measured differently. If you’re still paying high prices for rice, fuel, and transport, you’re not imagining things, the cost of living is still high. The change only affects how the rate of increase is recorded, not the actual prices in the market.
What’s the Impact on Ordinary Nigerians?
- Your spending power hasn’t improved overnight, things are still expensive.
- The Central Bank may use this new inflation rate to decide interest rates, which could affect loans and business costs.
- Some government officials MAY use the lower number as evidence that inflation is “cooling down”, but everyday Nigerians may not feel any real relief.
What to Watch Next? (Post-CPI Rebasing Impact)
- Will the Central Bank Adjust Interest Rates? The new lower inflation rate (24.48%) could see stakeholders mount pressure on the CBN to rethink its high interest rate strategy. Previously, the CBN raised rates aggressively to curb inflation, but now, with a lower reported figure, will it ease rates to support economic growth? Sophors Consulting Limited has advised the CBN to balance inflation control with growth, suggesting that monetary policy should align with structural reforms rather than relying solely on high interest rates.
- Speaking to Reuters, Razia Khan, chief economist for Africa and Middle East at Standard Chartered, said the lower inflation rate after the rebasing opens the door for an interest rate cut at the central bank’s monetary policy meeting this week.
- Will the CBN Get Help? Policy Coordination Is Required to Ensure Lasting Price Stability. The government needs to coordinate monetary policy (CBN interest rates) with fiscal actions (tax policies, spending plans, FX management). Without structural reforms, such as improving local food production and stabilizing energy costs—the benefits of CPI rebasing may not translate into long-term relief for Nigerians. It’s important for the government to reduce expenditure.
- Does CPI Rebasing Hide Persistent Inflationary Pressures? Rebasing makes inflation data more accurate, but it doesn’t eliminate the real impact of high food prices and FX volatility. The revised calculation method may understate the pressure on household budgets, especially if wage growth lags behind real cost increases. Policymakers must ensure inflation-targeting efforts reflect the realities of Nigerian consumers, not just statistical improvements.
- Will Naira Stability Influence Inflation Trends? The recent strengthening of the Naira (from NGN 1670/USD to NGN 1605/USD) suggests some relief on import costs, which could help stabilize core inflation. However, if the exchange rate remains volatile, the impact of CPI rebasing might be short-lived, and inflation could quickly climb again in subsequent months.
CPI rebasing gives a clearer statistical picture of inflation, but it does not mean life has become more affordable overnight. The real test is whether CBN policies, Naira stability, and structural reforms can prevent inflation from creeping back up in the coming months.
