Last week, the National Bureau of Statistics (NBS) released its monthly inflation report for October 2021. The report reflects that the country’s Consumer Price Index (CPI) declined for the eighth consecutive month from 16.63 per cent in September to 15.99 per cent in October – 1.76 per cent points higher than the rate recorded in October 2020 (14.23 per cent). The report appears unrelatable to average Nigerians who continue to pay high prices for commodities, prompting widespread criticism that it does not reflect the market reality.
How NBS calculates inflation
The inflation report published by the NBS is the headline inflation, which represents the total inflation in an economy. A common measure of headline inflation is the Consumer Price Index (CPI). The CPI measures the average change over time in the prices of goods and services consumed by people day-to-day. According to the bureau, 10,534 informants spread across the country provide price data for the computation of the CPI monthly.
Technically, the first stage in calculating the CPI is gathering prices for each item (740 goods and services) from outlets in each sector (rural or urban) for each state. Prices are then averaged across the state for each item per sector. The next step is to calculate the basic index for each commodity using the average price. Then, the current year price of each commodity is compared to the price of a base year to obtain a relative price.
According to the NBS, inflation has decreased drastically over the last ten months, and it is now at its lowest (15.99 per cent). Why are things still expensive? Our recent article on SBM’s Jollof index report addressed how costly it now is to prepare a pot of jollof rice. So how did the NBS come up with that utopian report, one may ask?
When there is an increase in headline inflation, it means the rate at which prices have gone up has increased. But not the same can be said when the inflation rate decreases. A drop in headline inflation does not always imply a drop in prices. Simply put, it means that prices are rising, but at a slower rate than the last time an inflation survey was conducted. So saying Nigeria is experiencing a decrease in inflation rate may not be out of place because it simply means prices are rising, but not at the pace they were.
In this context, if a bag of maize costs N50,000 in March, N100,000 in July, and N125,000 in October. Between March and July, there is a 100 per cent increase, followed by a 25 per cent decrease. This reflects that, while prices have increased in the last eight months, the rate of increase has slowed.
Since March 2021, Nigeria’s inflation rate has been declining monthly, and the Central Bank of Nigeria (CBN) projected it may drop to 13 per cent this year and a single-digit rate by 2022. The decline doesn’t indicate an immediate drop in prices, but if it persists, prices of commodities will cease to increase.
Reasons for inflation
The main drivers of inflation in the country are the unending devaluation of the naira, a decline in productivity and poor policies such as the ban on the sale of forex and the crackdown on sites offering parallel rates. Because Nigeria is an import-dependent country, the devaluation of the naira has increased the cost of imported goods such as food, raw materials, etcetera. Also, because there was no unified market information determining parallel rates following the crackdown on sites offering parallel rates, most forex traders raised their prices to trade safely. Hence, the cost of purchasing and importing commodities spiked. However, boosting the domestic production of imported items we are so reliant on is one of the ways of curbing inflation.
Written by Adekunle Agbetiloye