1) Introduction
Households and Micro, Small, and Medium Enterprises (MSMEs) in Nigeria continue to grapple with rising living costs, unpredictable business expenses, and an inflationary pressure that erodes purchasing power and profitability. These economic realities shape daily survival, operational efficiency of businesses, and the long-term viability and growth prospects of MSMEs. This has worsened poverty levels, with approximately 88 million Nigerians living below the poverty line, according to the World Bank. MSMEs, a key component of the Nigerian economy, are also heavily impacted, with production costs rising due to inflation, naira devaluation, and increasing energy and logistics expenses. Furthermore, analysis conducted by the United Nations Food and Agriculture Organisation (FAO) projected that by 2025, as many as 33 million Nigerians may experience severe food shortages due to compounded economic factors, further exacerbating the country’s dire economic situation.
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In response to these economic realities, the Federal Government of Nigeria released 42,000 metric tonnes of assorted food commodities to ease food pressure in March 2024, and the National Bureau of Statistics (NBS) undertook a rebasing of Nigeria’s Consumer Price Index (CPI) to better reflect current consumption patterns, resulting in a reported decline in the inflation rate to 24.48 percent in January 2025, down from 34.80 percent in December 2024. While rebasing is a statistical adjustment meant to enhance measurement accuracy, it does not change actual costs borne by households and businesses. This policy brief examines the impact of Nigeria’s CPI rebasing on economic realities and evaluates whether the rebased CPI serves as a true reflection of inflationary pressures.
2) CPI rebasing and economic realities
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. In line with this, Nigeria recently updated its base year for inflation calculations from 2009 to 2024, incorporating more recent consumption patterns into the Consumer Price Index (CPI). However, despite the reported statistical decline in inflation, the cost of goods and services remains elevated, which makes the perceived relief largely theoretical. A key concern with the updated CPI is the significant reduction in the weight of food and non-alcoholic beverages, which dropped from 51.8 percent to 40 percent.
CPI rebasing involves updating the expenditure basket used to calculate inflation, reflecting these changes in consumption patterns. However, these adjustments to the weightings can significantly alter the inflation rate and potentially create a disconnect between reported inflation figures and the real-life experiences of households. For instance, while the weight of food and non-alcoholic beverages has been reduced, other categories, such as restaurants and accommodation services, have seen a significant increase, rising from 1.2 percent to 12.9 percent. Similarly, the transport and health sectors saw increases in their weightings from 6.5 percent to 10.7 percent and 3.0 percent to 6.1 percent, respectively, reflecting their growing share of household spending. In contrast, categories such as Housing, Water, and Electricity saw a decrease in their weight, from 16.7 percent to 9.4 percent. This potentially understates the real financial burden of housing-related costs on Nigerian households.
Figure 1 above highlights the inflation trajectory in Nigeria from January 2023 to January 2025, showing the impact of key policy events such as fuel subsidy removal and CPI rebasing. The steady rise in both general inflation and food inflation indicates the worsening cost-of-living crisis. However, following the rebasing exercise in January 2025, the official inflation rate dropped significantly to 24.48 percent from over 30 percent, despite persistent price increases in key sectors. Notably, food inflation remained consistently higher than overall inflation, reaffirming concerns that the reduction of food weighting from 51.8 percent to 40 percent in the new CPI basket understates the impact of rising food prices on household welfare.
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3) Implications for MSMEs and business costs
The recent rebasing of CPI has significant implications for MSMEs, which are major contributors to the nation’s economic growth. As of 2022, a survey report by PwC on MSMEs revealed that MSMEs in Nigeria contribute 46.32% to the national GDP and account for about 87.9 percent of employment. However, these enterprises are currently grappling with escalating operational costs, primarily due to currency depreciation and surging transportation expenses. Many MSMEs depend on imports for raw materials and fuel; the naira’s depreciation has markedly increased import costs, while elevated fuel prices have led to higher logistics and distribution expenses.
The CPI rebasing, which adjusted the weighting of various expenditure categories, may not fully capture these heightened costs. Despite this adjustment, food inflation remains persistently high, and households continue to allocate a substantial portion of their income to food. This ongoing discrepancy between the rebased CPI and the real-world inflationary pressures experienced by consumers indicates that the new CPI may not fully reflect the actual economic strain felt by both households and businesses. Consequently, the figures provided by the rebased CPI could understate the inflationary challenges faced by MSMEs, leading to a potential underestimation of the financial strain on these enterprises. Policymakers, when relying on these figures, might fail to recognise the extent of the challenges faced by MSMEs.
“While rebasing is a statistical adjustment meant to enhance measurement accuracy, it does not change actual costs borne by households and businesses.”
Historically, several African countries, including South Africa, Ghana, Kenya, and Uganda, have undergone CPI rebasing recently. South Africa has rebased its CPI multiple times, with the most recent update in 2021. The impact of rebasing on inflation rates has varied – South Africa saw only a 0.2 percent decline, Kenya’s inflation declined by 1.5 percent, while Ghana experienced a 6.9 percent increase. Uganda’s inflation rose from 2.3 percent to 2.71 percent after shifting its base year from 2009 to 2021. In West Africa, Ghana’s 2018 CPI rebasing led to a reported decrease in inflation rates, but local businesses, especially MSMEs, continued to struggle with rising operational expenses. This disconnects statistical inflation figures and economic realities, indicating the need for more comprehensive analyses that integrate both statistical data and business conditions.
4) Conclusion and recommendations
A lower inflation rate, while offering a revised statistical outlook, can artificially boost real GDP figures, creating the illusion of economic stability. However, if GDP growth appears strong on paper while households and MSMEs continue to struggle, this signals a disconnect between official statistics and real economic conditions. Such discrepancies risk misguiding policy priorities, potentially delaying necessary interventions in wage adjustments, subsidies, and support programmes. Policymakers must look beyond rebased figures and implement measures that address structural inflation, ensuring that economic management translates into tangible benefits for Nigerians.
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To enhance data accuracy, the National Bureau of Statistics (NBS) should ensure that CPI calculations reflect the true consumption patterns of Nigerian households and businesses. Given the significant share of food in household expenses, interventions aimed at stabilising food prices are crucial to avert the rise in hunger/poverty projected in 2025 by FAO. Additionally, government agencies must improve public communication to prevent misinterpretation of CPI rebasing and ensure transparency in economic policymaking.
Prof. Joseph Nnanna: Chief Economist, Development Bank of Nigeria.
(The views expressed in this article are those of the author; they do not necessarily reflect Development Bank of Nigeria policy.)
