1) Introduction
The Nigerian economy continues to grapple with high inflation and structural challenges, most notably insecurity, which undermine household welfare and the operating environment for businesses. The National Bureau of Statistics, (NBS), implemented significant methodological adjustments to the Consumer Price Index, (CPI), in early 2025 by rebasing the index to a 2024 base year. Since the rebasing, headline inflation has exhibited a steady disinflationary trend, declining from 24.48 percent in January 2025 to 15.15 percent by December 2025.
While this recalibration was designed to improve the statistical accuracy of inflation measurement, it has generated considerable debate among economists, policymakers, and the public. Many argue that the resulting technical inflation deceleration reflected in official indices understates the real inflation experienced by households, as prices of essential items have shown little improvement and remain elevated. Against this backdrop, the International Monetary Fund, IMF, projects that Nigeria’s gross domestic product (GDP) growth will increase to 4.4 percent in 2026 from 4.2 percent in 2025, reflecting improved macroeconomic conditions, while cautioning that inflationary risks remain elevated.
Figure 1. Monetary Policy Rate and Inflation (January 2024 – December 2025)
This disconnect raises a vital policy question: should monetary policy be guided by technical inflation statistics that may understate real price pressures, or by real inflationary experiences that define everyday living costs? The debate is intensified by the Central Bank of Nigeria’s (CBN) tight monetary stance, with a Monetary Policy Rate (MPR) of 27.00 percent, one of the highest in recent history. This article analyses the consequences of CPI rebasing, examines the gap between technical and real inflation, evaluates the impact of monetary policy, and proposes solutions to close this gap without undermining economic stability and inclusiveness.
2) CPI Rebasing and the Disruption between Technical and Real Inflation
In line with international standards defined in the System of National Accounts (SNA), Nigeria rebased its CPI base year in 2024, replacing the previous 2009 base year, to better reflect current consumption patterns which resulted in a drastic decline in reported inflation figures. Among the crucial changes was the decrease in the weight of Food and Non-Alcoholic Beverages (51.8) to 40.1 and the increase of such categories as Restaurants and Accommodation Services (1.2) to 12.9 and Transport (6.5) to 10.7. While these changes are intended to improve the accuracy of measurement, critics argue that they create a statistical illusion that disconnects official data from lived experiences.
To households, real inflation is reflected in persistent increases in food prices, with food inflation remaining high at 26.08 percent even after rebasing, despite the decline in headline inflation. The Food and Agriculture Organization (FAO) estimates that 34 million Nigerians will be severely affected by food scarcities by mid-2026, a rise from 33.1 million Nigerians in 2025 and over 31 million in 2024. This situation is likely to be worsened by exchange rate volatility and supply chain disruptions. It is therefore unsurprising that the rebasing has generated public dissatisfaction since these trends are unlikely to be captured by technical inflation. Rebasing moderates inflation figures by updating the consumption basket to current behaviours, but it does not change the actual costs faced by consumers.
Some economists have cautioned that rebasing can mask real cost-of-living crises and may lead to inappropriate policy responses. For instance, in December 2025, the CPI increased by 131.2 points compared to 130.5 points in November, implying a month-on-month inflation increase of 0.54 percent, while year-on-year inflation remained 19.65 percent below December 2024. These imbalances illustrate how technical changes can reduce measured burdens in sectors such as housing, where weights were reduced from over 16.7 percent to 9.4 percent, even as rising rents and energy bills continue to consume larger shares of household income.
3) Monetary Policy and Economic Implications
The Central Bank of Nigeria’s (CBN) monetary policy is anchored on inflation targeting and therefore relies heavily on CPI data when setting the Monetary Policy Rate (MPR). With the MPR at 27.00 percent, the CBN is pursuing a tight monetary stance to restrict money supply and stabilize prices. However, if policy decisions rely heavily on technical inflation measures, they may overlook critical supply-side factors such as insecurity and dependence on imports.
Excluding volatile food and energy components, core inflation declined to 18.63 percent in December 2025, but real cost pressures driven by naira volatility remain significant. Technical inflation also understates the operational strains faced by micro, small, and medium enterprises (MSMEs), which contribute 46.32% of GDP and 87.9% of employment. According to PwC surveys, rising currency depreciation and fuel costs are increasing operating expenses, forcing many businesses to close.
When policy priority is placed on rebased inflation figures, interventions such as credit easing and targeted subsidies may be delayed, potentially increasing inequality and deepening the cost-of-living crisis. Although the IMF supports the rebasing for improved data quality, it also recommends addressing the underlying causes of inflation and warns that, without reforms, inflation could reach 16 percent in 2026. However, a key debate is whether inflation in Nigeria is primarily demand-driven or supply-driven. In the Nigerian ecosystem, supply-side disruptions, particularly in agriculture, arguably outweigh the monetarist argument that excess money supply is the main driver of inflation. This shows that monetary policy alone may not be sufficient. Thus, coordinating fiscal and monetary policy tools, therefore, becomes essential, as research indicates that coordinated policy can generate stronger growth outcomes.
4) Bridging the Divide: Policy Priorities and Recommendations
To address the tension between technical and real inflation, policymakers must combine CPI data with qualitative indicators and real-world signals.
This requires improving NBS transparency through open communication and clearer explanation of methodology, as demonstrated in recent workshops. At the same time, enhanced social protection, including targeted transfers to vulnerable households, would soften the real effects of inflation, while macroeconomic targets continue to be guided by technical data.
Effective inflation management also requires structural reforms that support economic stability. Non-oil export incentives and sustainable foreign exchange management are critical, particularly given the NESG forecast of 5.5 percent growth with disciplined reforms. Inflation targeting by the CBN must be supported by robust forecasting models, which indicate that money supply and external debt are key drivers of inflation. A hybrid approach to monetary policy, combining technical data with market-based and qualitative signals, will help policymakers calibrate decisions more effectively.
While technical inflation stands at 15.15 percent, suggesting relative stability, real economic pressures remain, and there is a risk of policy complacency. Welfare improvements cannot be measured by statistics alone, as the Nobel Laureate Joseph Stiglitz noted. Even though the NESG projects 5.5 percent growth, policy planning must also reflect the realities of everyday Nigerians.
Therefore, the following recommendations are proposed: (1) NBS should work on CPI to reflect food weights, so that it is consistent with realities on the ground; (2) CBN must use a hybrid method, relying on real signals such as market surveys as well as technical data to calibrate their policies; (3) Government agencies should coordinate fiscal and monetary policy to address supply-side inflation; (4) Government agencies should invest in climate-resilient agriculture and security to stabilise food prices to avoid the 2026 hunger forecasts of FAO; (5) Government agencies should continue to improve communications and co-operate with other stakeholders to improve policy making and data.
Prof. Joseph Nnanna
Chief Economist Development Bank of Nigeria
The views expressed in this article and are those of the author; they do not necessarily reflect Development Bank of Nigeria policy.
