On (Inflation) Numbers that Make No Sense
In some ways, the bond market is similar to the political governance market in Nigeria.
One big announcement: I am teaching my course on macroeconomic analysis in July, check the course to see if you’d be interested.
In April 2025, I wrote an essay about the issues around the CPI rebasing done by the NBS. The essay showed that inflation should be higher than what the NBS reported. After considering both the underlying momentum in prices and the statistical changes, I found no justification for the low inflation numbers.
Last week, the May 2025 inflation report was published, and I still have concerns. Some numbers simply don’t add up.
In May 2025, the NBS reported that month-on-month (m/m) inflation (price change from April 2025 to May 2025) for all goods and services (headline) was 1.53%. This is simple enough to understand: on average, prices rose by 1.53% in May 2025 from the previous month.
In Nigeria, the Consumer Price Index (CPI) used to compute inflation has 13 classifications of goods and services. Beyond that, there are special indices such as goods, services, farm produce, energy, and more. These indices help isolate certain prices so that we can better understand their behaviour and what’s driving overall inflation.
What doesn’t make sense are the discrepancies in the special indices that make up the headline CPI. The numbers don’t add up.
The goods index, which is 62.48% of the CPI basket, rose by 9.4% m/m yet the headline CPI increased by only 1.53% m/m. The pattern is similar in the services index, which rose m/m by 1.79%. Given these numbers, the actual m/m inflation should be around 6.51%, not 1.53%. In the chart below, you can see that the deviation happened only in May 2025.
How can the overall CPI grow slower than its components? This is illogical and absurd. If X and Y make up Z, then the growth in Z should fall between the growth rates of X and Y.
This inconsistency is also evident in other special indices, such as farm produce, energy, all items less farm produce, and core inflation. The farm produce index, which is 26.6% of the CPI basket, grew by 22.4% in May 2025. How does a 22.4% surge in in farm produce prices not significantly impact headline numbers?
But this is Nigeria, so no one really cares. Institutions are rarely held accountable, so it’s business as usual. Whether at the grassroots level or in financial markets, Nigerians seem content with what they get.
The bonds market and political governance market are the same. We only criticise those who sell their votes for N500 or some other “negligible” amount. But if you manage a pension portfolio of over N23tn ($14.5bn+), which has lost nearly 50% of its real value (inflation-adjusted or dollar-adjusted terms) over the past six years, then you are considered part of the elite who is capable of making smart decisions :)
I believe it’s damaging for inflation to exceed 30% while being magically reported as lower. But what does your pension manager think? Is it reasonable for them to buy bonds and earn poor returns due to understated (but actually higher) inflation?
What do you think?
The real problem with Nigerian pensions isn’t just the terrible inflation and return numbers they show you. The damage is when you collect your entitlements and they are worth almost nothing in the marketplace in the future.
Even if official inflation numbers are fanciful, the prices of goods and services are real.
Lol... We care. But they wii tell us "Go to court"
All major macroeconomic data has been bastardized.
What’s the usefulness of macro indices if they can’t inform policymaking. I wonder what the fiscal authorities will do with lower inflation on paper and what flow through effect that has on the public.