Every month we hear news about new inflation rate or data but have you ever wondered how it is calculated? I did and decided to find out straight from the bureau themselves. The explanation below is usually included in the CPI report released monthly by the National Bureau of Statistics under the “Brief Methodology” Section. I think it’s worth noting.
How Nigeria determines its Inflation rate
The CPI measures the average change over time in prices of goods and services consumed by people for day-to-day living. The construction of the CPI combines economic theory, sampling and other statistical techniques using data from other surveys to produce a weighted measure of average price changes in the Nigerian economy. The weighting occurs to capture the importance of the selected commodities in the entire index. The production of the CPI requires skills of economists, statisticians, computer scientists, data collectors and others.
Key in the construction of the price index is the selection of the market basket of goods and services. Every month, 10,534 informants spread across the country provide price data for the computation of the CPI.The market items currentlycomprise of survey) and relative prices for each item is divided by the sum of the weight of the items in that class, and the result multiplied by 100 gives the required index number. This index number is still classified according to the urban or rural classification sector for each of the 36 states and the FCT. This yields 85 classes then 48 groups which 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 survey methodology generates 3774 all items indices for all states and the FCT.
Mind you the increase between a prior year’s (say April 2012) consumer price index (CPI) and the current year