Statistical Method of Calculating Inflation in Nigeria
Nigeria’s inflation rate is calculated using the Consumer Price Index (CPI) method, which measures the average change in the price of a selected basket of goods and services over time. The National Bureau of Statistics (NBS) is responsible for tracking and reporting inflation in Nigeria.
Step-by-Step Process for Inflation Calculation
1. Selection of a Base Year
• The base year is chosen as a reference point (e.g., 2010 = 100 or updated periodically).
• Prices in the base year are set to 100, and future price changes are measured relative to this base.
2. Consumer Price Index (CPI) Calculation
• A basket of goods and services is selected based on household consumption patterns (e.g., food, transportation, housing, healthcare).
• Prices of these items are collected from markets and stores across urban and rural areas.
• The formula for CPI is:
Where:
• = Prices of goods/services in the current period
• = Prices of goods/services in the base year
• = Weight of each item in the basket
3. Inflation Rate Calculation
• The inflation rate is the percentage change in CPI over a given period (monthly or yearly).
• The formula used is:
For example, if:
• CPI in January 2024 = 400
• CPI in January 2023 = 350
Then, the year-on-year inflation rate is:
Types of Inflation Calculated in Nigeria
1. Headline Inflation – Overall inflation, including all items in the CPI basket.
2. Core Inflation – Inflation excluding volatile items like food and energy.
3. Food Inflation – Measures only price changes in food items.
Key Factors Influencing Inflation in Nigeria
• Exchange Rate Fluctuations – Depreciation of the naira increases the cost of imported goods.
• Fuel Prices & Subsidies – Petrol price changes impact transportation and food costs.
• Money Supply & Interest Rates – Excess liquidity can drive up inflation.
• Insecurity & Supply Chain Disruptions – Banditry, insurgency, and poor infrastructure increase production costs.
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