Financial and economic analysts are urging the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) to lower benchmark interest rates, following a significant decline in Nigeria’s inflation rate.
The National Bureau of Statistics (NBS) announced on Tuesday that headline inflation dropped to 24.48% in January 2025, following the rebasing of the Consumer Price Index (CPI). This marks a sharp decline from 34.80% in December 2024.
CPI Rebasing and Inflation Figures
Announcing the changes, Statistician-General of the Federation, Prince Adeyemi Adeniran, stated:
“The All-Items Index, used to measure headline inflation for January 2025, was 110.7, resulting in a headline inflation rate of 24.48% year-on-year. This increase was mainly driven by Food and Non-Alcoholic Beverages, Restaurants and Accommodation Services, and Transport.”
He explained that the CPI rebasing involved shifting the base year from 2009 to 2024, ensuring a more accurate reflection of inflationary pressures and capturing current consumption patterns, pricing, and household expenditures.
The new methodology includes the adoption of the Classification of Individual Consumption According to Purpose (COICOP) 2018 version, refining how household expenses are categorized. Own-production, imputed rents, and gifted items are now excluded from inflation calculations to reflect actual monetary expenditures.
Key Inflation Metrics (January 2025)
- Food Inflation: 26.08% (down from 39.84% in December 2024)
- Urban Inflation: 26.09%
- Rural Inflation: 22.15%
- Core Inflation (excluding farm produce and energy): 22.59%
The rebased CPI also introduced new special indices to track inflation more effectively:
- Farm Produce Index: 10.50%
- Energy Index: 8.9%
- Services Index: 10.41%
- Goods Index: 10.79%
- Imported Food Index: 11.47%
Calls for Interest Rate Reduction
Following the release of the rebased inflation data, economic analysts expect the CBN’s MPC to reduce the Monetary Policy Rate (MPR).
Professor Uche Uwaleke, a capital market expert at Nasarawa State University, welcomed the rebasing, noting that it would aid monetary policy decisions.
“The rebasing exercise is meant to reflect current inflationary pressure. The new methodology aligns Nigeria’s inflation figures with international standards, helping both foreign and domestic investors make better economic decisions.”
Tunde Amolegbe, Managing Director of Arthur Stevens Asset Management, emphasized that while inflation figures have dropped, commodity prices remain high.
“The inflation rate has decreased because the size of the economy (the denominator) has expanded. Now that inflationary pressure appears to be easing, the MPC should pause rate hikes to support economic growth.”
Caution Against Overoptimism
Dr. Muda Yusuf, Director of the Centre for Promotion of Private Enterprise (CPPE), stated that the inflation decline was expected due to the rebasing but warned against over-celebration.
“The sharp drop from 34.8% to 24.48% was driven by changes in the base year and seasonal spending patterns. December’s high consumer demand pushed inflation up, while January’s lower spending contributed to the decline.”
However, Yusuf stressed that lower inflation does not mean lower prices, explaining:
“A drop in inflation means the rate of price increases has slowed—not that prices are falling. Businesses and households still struggle with high energy costs, naira volatility, high interest rates, transport expenses, and insecurity.”
He urged the government to address key cost drivers to achieve disinflation—a gradual moderation of high price levels.
Concerns from Small Business Owners
Dr. Femi Egbesola, President of the Association of Small Business Owners of Nigeria (ASBON), pointed out that while CPI rebasing is standard practice, it does not always reflect macroeconomic realities.
“Rebasing adjusts inflation figures statistically, but for the average Nigerian, the cost of living remains high. Economic policies must go beyond data adjustments and focus on real-life solutions.”
Conclusion
While the inflation drop is a significant development, experts argue that a lower MPR is necessary to stimulate economic growth. However, concerns remain over persistently high prices, and analysts stress the need for structural reforms to improve living conditions and ease business operations.
