Real vs Technical Inflation: Which Should Guide Monetary Policy in Nigeria?
•February 17, 2026
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Why It Matters
Relying on understated technical inflation may cause policymakers to under‑react to household cost‑of‑living crises, deepening inequality and undermining sustainable growth.
Key Takeaways
- •CPI rebasing cut headline inflation to 15.15% by Dec 2025.
- •Food inflation stayed above 26% despite technical decline.
- •CBN’s policy rate remains at 27%, anchored on CPI data.
- •IMF warns inflation could hit 16% in 2026.
- •Hybrid policy recommended: combine technical data with real‑world signals.
Pulse Analysis
The 2024 CPI rebasing aligns Nigeria’s inflation measurement with international best practices, updating the consumption basket to reflect current spending patterns. By shifting weight away from food and non‑alcoholic beverages toward services such as restaurants and transport, the statistical series shows a sharper disinflation trend. While the methodological overhaul improves comparability across periods, it also creates a statistical illusion: headline inflation appears to have fallen dramatically, even as underlying price pressures, especially for essential goods, remain stubbornly high. Analysts caution that policymakers must understand the distinction between a technical metric and the lived experience of consumers.
Real inflation in Nigeria is driven largely by supply‑side constraints. Food price inflation stayed above 26% after rebasing, fueled by exchange‑rate volatility, agricultural bottlenecks, and security challenges that disrupt supply chains. These factors disproportionately affect low‑income households and micro‑small‑medium enterprises, which together account for nearly half of GDP and almost 88% of employment. The divergence between technical CPI figures and on‑the‑ground price dynamics risks misreading the economy’s health, leading to delayed credit easing or insufficient social protection measures.
For monetary policy, the Central Bank’s 27% policy rate reflects a tight stance anchored to the rebased CPI, yet the IMF’s warning of a possible 16% inflation spike in 2026 underscores the limits of a purely data‑driven approach. A hybrid framework that blends technical inflation data with real‑time market surveys, food‑price indices, and qualitative signals can better calibrate policy levers. Coordinated fiscal actions—targeted transfers, climate‑resilient agriculture, and exchange‑rate management—are essential to address supply‑side shocks. By marrying statistical rigor with ground‑level realities, Nigeria can navigate the inflation‑growth trade‑off while protecting household welfare.
Real vs technical inflation: Which should guide monetary policy in Nigeria?
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 % in January 2025 to 15.15 % 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 % in 2026 from 4.2 % in 2025, reflecting improved macro‑economic 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 %, 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. This 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 (from 51.8 % to 40.1 %) and the increase of categories such as Restaurants and Accommodation Services (from 1.2 % to 12.9 %) and Transport (from 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 % 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 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 %, while year‑on‑year inflation remained 19.65 % 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 % to 9.4 %, 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 %, 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 % 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 % in 2026. 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. 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.
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Improve NBS transparency through open communication and clearer explanation of methodology, as demonstrated in recent workshops.
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Enhance social protection, including targeted transfers to vulnerable households, to soften the real effects of inflation while macro‑economic targets continue to be guided by technical data.
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Pursue 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 % growth with disciplined reforms.
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Strengthen inflation targeting by the CBN with robust forecasting models that identify money supply and external debt as key drivers of inflation.
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Adopt a hybrid approach to monetary policy, combining technical data with market‑based and qualitative signals, to calibrate decisions more effectively.
While technical inflation stands at 15.15 %, suggesting relative stability, real economic pressures remain, and there is a risk of policy complacency. Welfare improvements cannot be measured by statistics alone, as Nobel Laureate Joseph Stiglitz noted. Even though the NESG projects 5.5 % growth, policy planning must also reflect the realities of everyday Nigerians.
Recommendations
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NBS should adjust CPI food weights to better reflect on‑the‑ground realities.
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CBN must use a hybrid method, relying on real signals such as market surveys as well as technical data to calibrate its policies.
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Government agencies should coordinate fiscal and monetary policy to address supply‑side inflation.
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Government agencies should invest in climate‑resilient agriculture and security to stabilise food prices and avoid the 2026 hunger forecasts of the FAO.
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Government agencies should continue to improve communications and cooperate with other stakeholders to enhance policymaking and data quality.
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.
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