Six years ago, in the third week of July to be precise; the National Bureau of Statistics (NBS) reported inflation rate dropped to 8.5%. A lot of people took the news with a pinch of salt pointing to the ever increasing prices of commodities.
That year, I read a few commentaries where analysts complain about the seemingly contradictory nature of a drop in inflation and a rise in prices of commodities. From experience, I have observed that people just don’t understand why the Bureau of Statistics will tell us inflation has reduced yet prices of commodity never dropped.
Like 2013, Like 2019
It’s a quandary for some. However, the DG of the Statistics Bureau (that year, in a bid to clear this economic mass-misunderstanding) explained the difference between inflation and a rise in prices of commodities. Digging up the archive all again, see excerpts of his explanation;
“Inflation is not a reduction in prices; inflation is a rise in prices. When you say it has gone down, it means the rise this time is not as much as the previous time.
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Talking Economics
“Inflation (fall) is the slowdown in the rise of price; it is not a reduction in price as most people think. Price rise is actually a good thing but you have to ensure that the extent of that price rise is reasonable and going at a sustainable pace,” he explained.
The Big Illustration
Furthermore, the NBS boss explained: “If your price is N100 and it goes to N200 last month and this month it goes to N250, this difference is N50 compared to N100 but it has still risen. All it is showing is that the rise is slower than previously.”
Moving Forward
Coming back to the present against the inflation drop news, I guess this piece puts the matter to bed once and for all.
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I have a problem with this explanation. Inflation, as I know it, is the change in price as against a base. For example if the base year is 2015 and the price of say a bag of rice is N100 in 2015 if then, in 2016 the bag of rice increases to N110 we can say the inflation rate is 10% and if in 2017 a bag of rice sells for N150 we can say the inflation rate is 50%.
If this is correct, then a rise (or reduction) in inflation rate would suggest a rise (or reduction) in price