Nigeria has rebased its Consumer Price Index (CPI) to 2024, significantly affecting how inflation is measured. This move aligns with recent economic reforms, including the removal of fuel subsidies, naira liberalization, and tax policy changes. While this update aims to provide a more current reflection of price trends, analysts warn that it may introduce risks for investors, policymakers, and economic stability. Credit rating agencies and foreign investors rely on CPI data, and any inconsistencies could lead to uncertainty and higher risk premiums on Nigerian assets.
The rebasing comes at a time when inflation is at historic highs, with households spending up to 90% of their income on essentials. Using 2024 as a base year may create a “base effect bias,” making future inflation appear lower than it actually is. This could mislead policymakers and investors into thinking inflation is stabilizing, potentially delaying necessary economic interventions or distorting long-term planning.
A key concern is that rebasing could create false economic signals. If inflation slows or prices fall, the CPI might indicate deflation or disinflation, which could be misread as economic distress rather than recovery. Such misinterpretation may lead to premature policy responses, like excessive interest rate cuts, which could backfire by reigniting inflationary pressures. Some experts suggest that 2019, a period of relative stability, would have been a more appropriate base year for measuring long-term inflation trend
The new CPI base year could affect monetary and fiscal policies, business planning, and investor confidence. If inflation appears lower due to the rebasing, it may deter necessary policy action and lead to miscalculations in wage adjustments, pricing strategies, and capital investment. Additionally, the credibility of economic data is crucial for market stability—if the public perceives the rebased CPI as an attempt to mask inflation, it could undermine trust in government policies and trigger social unrest.
To manage the risks associated with the rebased CPI, experts recommend transparent communication, regular economic impact assessments, and stakeholder engagement. The government should ensure clear public messaging on how the new CPI affects inflation readings and work with financial institutions, analysts, and international bodies to align Nigeria’s inflation data with global standards. Proper monitoring and adjustments will be necessary to prevent misleading economic signals and to sustain investor confidence in Nigeria’s market.
Source: tribune