“I do not agree with that statistic”

These were the words of Dr Ajibola Bashiru in a viral clip as he debated with Seun Okinbaloye, the Channels TV anchor on the TV show “Politics Today”, on the headline inflation rate in Nigeria. The statement was made in response to the anchor pointing out that the headline inflation rate, as published by the National Bureau of Statistics (“NBS”), had risen from a little over 20% when the President Bola Ahmed Tinubu administration assumed office in May 2023 to 34.19%, a year later, representing an increase of about 50%. Mr Bashiru’s response shocked many, who wondered why the former senator would disagree with the NBS's data. Furthermore, Dr Bashiru offered no numbers of his own, leading many to speculate that he was merely deflecting from the original point. 

Against this background, we decided to analyse the NBS’s methodology for calculating inflation. It turned out that Dr. Bashiru may just have been right. Nigeria’s food inflation is far worse than the 39.53% rate recently published by the NBS in its Consumer Price Index (“CPI”) Report for July 2024.

The NBS’ Methodology for Calculating Inflation

The NBS, via the Consumer Price Index (CPI) calculation, measures the average change over time in the prices of goods and services consumed by people for day-to-day living. The CPI comprises the market basket of goods and services and currently includes 740 goods and services regularly priced by NBS staff across the nation. The prices are then averaged, and the average price is used to calculate the basic index for each commodity. This is an important point to note. Next, the NBS uses the Laspeyres formula to compute an aggregated index for each class. Each class has a multitude of commodities that have similar consumption purposes. The classes and groups are then reclassified into 12 divisions to derive:

1. The Country Composite Index

2. The Urban National Index

3. The Rural National Index

4. The Combined Urban and Rural State Composite Index

The NBS allocates a weight to each division based on the expenditure surveys it has carried out. In Nigeria, these expenditure surveys are the Consumption Expenditure Pattern in Nigeria Reports for 2009/10 and 2019 carried out by the NBS. The weights of each division’s index are then multiplied by the individual value of the division index to calculate the contribution of that division’s index to the All-Items Index.

For context, we look at the weight of each division’s contribution to the headline inflation for June 2024 vis-a-vis the weights allocated by the NBS to each division:

We observe that the percentage contribution to inflation is the same as the weight allocated to the division in computing the CPI. Thus, the NBS's method of calculating the CPI is pretty much the same as the method used to calculate a company's weighted average cost of capital.

To further validate this assumption, we look at the NBS All-Items Index reported for June 2024. In calculating this, the various division indexes contribute to the All-Items Index according to their weights allocated by the NBS. Per the NBS CPI Report, the All-Items Index values for June 2023 and June 2024 were 559.1 and 750.3 respectively. The growth in the All-Items Index is after that measured, and this represents the inflation rate for the period under review. We thus calculated each division’s contribution to the All-Items Index for June 2023 and June 2024 based on the weights allocated to the divisions by the NBS as follows:

The inflation rate is thereafter derived by measuring the change in the All-Items Index. In this case, the inflation rate as reported by the NBS for June 2024 is:

The Laspeyres Formula

As stated above, the NBS uses the Laspeyres formula to calculate an aggregated index for each class of item. The Laspeyres Price Index is a consumer price index used to measure the change in the prices of a basket of goods and services relative to a specified base period weighting. A base period is picked, and a base figure is selected against which future inflation is to be measured. The index commonly uses a base year figure of 100, and then inflation is measured against that base year figure of 100. In Nigeria, this base period is November 2009.

The formula for calculating the Laspeyres Price Index is as follows:

To properly understand how the Laspeyres Price Index works, we will look at an example.

This means that for the year, inflation for that particular basket of items was 42.86%, with the index growing from 100 to 142.86.

Food Inflation: What the Numbers Really Say?

At face value, the NBS CPI Report tells us that the food price index, and consequently the price of food, has gone up by 843.5% from 100 in the base year of November 2009 to 943.5 in June 2024. This means that food prices have grown at a compound average growth rate of 16.5% from the base year to date. However, the NBS CPI Reports do not show us how the individual division index numbers were arrived at. We are, therefore, unable to validate the index numbers to verify that the published index numbers are correct.

We then used the Laspeyres index to calculate Nigeria’s food inflation numbers from June 2023 to June 2024. To do this, we referred to the NBS Selected Food Price Watch Reports for the months of June 2022 to June 2024. The Selected Food Price Watch Reports measures the changes in the prices across all the states in Nigeria of 1kg of the foods highlighted in the report. The average of all the prices is thereafter reported for each state, and the total average for the states is the average increase in the cost of 1kg of that food item for the country. 

It must be noted that a basket of goods and services for calculating the CPI does not contain every good or service under that classification in the Nigerian economy. Therefore, we used the items regularly priced in the Food Price Watch Reports to represent the items in the CPI basket for calculating food inflation. We then used the NBS Consumption Expenditure Pattern in Nigeria Reports for 2009/10 and 2019 to allocate weights to the respective food items to calculate the Laspeyres Index for the items. While we understand that the weights of the food items in the basket differ from state to state, the weights used are the weights representing the share of each item in the total expenditure on food at the national level, therefore removing the effects of any variances in the weights allocated to the food baskets for each state. The prices used were also the average national prices for the various food items in June 2023 and June 2024, consistent with the NBS methodology of using average prices to calculate the basic indexes for each commodity.

Our calculations showed that the weighted price of a basket of the 43 commodities regularly priced in the Price Watch Reports moved from N2,685 in June 2023 to N6,242.63 in June 2024, representing a one-year increase of 132.50% in the price of this basket and, consequently, in the food price index. The lowest increase in price was palm oil, with the price rising by 56.9% from N1,174.20 to N1,842.27. The highest increase in price was tomatoes, with the price increasing by 320.67% from N547.28 to N2,302.26.

We also calculated the unweighted food inflation rate. For this, we assumed that each item in the food basket was weighted the same, meaning that all items had an equal influence on determining the food inflation rate.

Below is a summary of the calculations:

In analysing food inflation numbers using the Food Price Reports and the weight allocations from the national consumption reports surveys, we noticed discrepancies between the food inflation derived from the calculations vis-a-vis the NBS reported numbers. We initially put this down to a weight allocation error, leaving room for minor variations in the actual weights allocated to the food items. However, in October 2023, we hit our first spike in the difference in the analysed rates and the NBS’ food inflation rate, with a gap of 10.49%. 

The analysis showed that food inflation should have hit circa 42.01% in October 2023, at a time when the NBS was still reporting food inflation at 31.52%. That rate has only continued to grow, with the gap between the inflation rate calculated from the Selected Food Price Watch Reports and the NBS reported food inflation widening to as much as 91.63%. Current food prices show food inflation at a whopping  132.50% for June 2024. In contrast, the NBS reported food inflation at 40.87% for June 2024.

We, therefore, recalculated the inflation rate for June 2024 using the recalculated food inflation rate while holding all other factors as the same. 

Based on this recalculation, our numbers showed that Nigeria’s headline inflation rate for June 2024 is at least 92.17%, representing an increase of 169.59% over the NBS reported headline inflation of 34.19%.

It is pertinent to note that even if we had calculated the food inflation rate for June 2024 using the average food prices observed in June 2023 and the lowest prices observed across Nigeria for each food item by June 2024, the food inflation rate would be 54.9%, higher than the 40.87% reported by the NBS for the month of june 2024 (as at the time of submission, the NBS reported a 39.53% food inflation rate for the month of July 2024).

References 

Channels Television (July 2024), https://x.com/channelstv/status/1816184791198265817

NBS (March 2012) Consumption Pattern in Nigeria 2009/10, https://www.nigerianstat.gov.ng/pdfuploads/Consumption%20Pattern%20in%20Nigeria%202009-10.pdf 

NBS (May 2020) Consumption Expenditure Pattern in Nigeria 2019, https://nigerianstat.gov.ng/elibrary/read/1094

NBS (June 2024) CPI and Inflation Report, https://nigerianstat.gov.ng/elibrary/read/1241533

NBS (June 2024) CPI and Inflation Report, https://nigerianstat.gov.ng/resource/cpi_1NewJune2024.xlsx 

NBS (June 2022 - June 2024) Selected Food Price Watch Reports, https://nigerianstat.gov.ng/elibrary