Nigeria's Inflation Rebase and Investment Implications

Nigeria's 2024 economic rebase has reshaped the country's macroeconomic landscape, recalibrating inflation metrics and influencing policy decisions. By updating the GDP structure to reflect a services-driven economy-where services now account for 55.5% of GDP, agriculture 27.8%, and industry 16.7%-the rebase aimed to align data with current consumption patterns and urbanization trends according to Africacheck. This recalibration, however, has sparked debates about the true impact of revised inflation figures on policy effectiveness and investor confidence.

The Inflation Rebase: A Statistical Shift

The rebase recalibrated Nigeria's Consumer Price Index (CPI) basket, expanding it from 740 to 934 items to include sectors like fintech and healthcare. This adjustment led to a sharp drop in headline inflation, from 34.80% in December 2024 to 24.48% in January 2025. Food inflation similarly fell from 39.84% to 26.08% during the same period. By reducing the weight of food and non-alcoholic beverages while increasing emphasis on services such as restaurants and accommodation, the rebase reflected evolving consumption habits. Yet, as noted by analysts, these lower figures do not necessarily signal reduced price pressures. Supply-side challenges-including insecurity in farming regions and logistics bottlenecks-persist, complicating the interpretation of revised data.

Policy Responses: Tightening and Caution

The Central Bank of Nigeria (CBN) has maintained a hawkish stance, raising the monetary policy rate to 22.75% to combat inflationary pressures. While the rebase may allow for a more measured approach in future rate adjustments, policymakers remain cautious. The CBN's strategy balances the need to stabilize prices with the risk of stifling economic growth in a context of structural vulnerabilities. As a report by Reuters highlights, the rebase's statistical recalibration could inform more targeted interventions, but its success hinges on addressing underlying supply-side issues.

Market Confidence: Gains Amid Lingering Risks

The rebase has coincided with modest improvements in market confidence. Foreign exchange reforms and fuel subsidy removal under President Bola Tinubu's administration have stabilized the naira, with foreign reserves reaching a three-year high of $40 billion by November 2024. The Nigerian Stock Exchange saw portfolio investment surge to ₦5.59 trillion in 2024, driven by both domestic and foreign inflows. Credit ratings agencies have also responded positively: Fitch affirmed Nigeria's 'B' rating with a stable outlook, while S&P Global upgraded its outlook to positive, citing improved fiscal discipline and oil production gains.

However, investor optimism remains tempered. Despite the drop in reported inflation, real GDP growth of 3.84% in 2024 must contend with persistent inflation averaging 32–34% in 2024 according to Verivafrica. Structural risks-including oil dependency, security challenges, and fiscal imbalances-continue to cloud long-term prospects.

Caveats and the Road Ahead

The rebase's primary value lies in its ability to generate more accurate data for policy formulation. Yet, as a 2023–2024 study on Nigerian consumer perceptions notes, the public still views the cost of living as unacceptably high. This disconnect between statistical revisions and lived experience underscores the need for complementary reforms. For investors, the rebase offers a clearer lens on economic trends but should not obscure the reality of supply-side constraints.

In conclusion, Nigeria's inflation rebase has recalibrated macroeconomic indicators and spurred policy adjustments, while modestly boosting market confidence. However, the true test of its impact will depend on the government's ability to address structural challenges and translate improved data into tangible economic resilience.