BRIEF METHODOLOGY: 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, 10534 informants spread across the country provide price data for the computation of the CPI. The market items currently comprise of 740 goods and services regularly priced.
The first stage in the calculation of the CPI is the collection of prices on each item (740 goods and services) from outlets in each sector (rural or urban) for each state. Prices are then averaged for each item according to sector across the state.
Next step is to use the average price to calculate basic index for each commodity:
The current year price of each commodity are compared with a base year’s price to obtain a relative price.
Next we use the Laspeyres formula to compute aggregated index for each class (which has a multitude of commodities which have similar consumption purpose): Here the sum of the product of weights (obtained from the expenditure 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 and then the derived:
1. The country composite index
2. The Urban Composite index
3. The Rural Composite index
4. The Combined Urban and Rural State Composite index
The survey methodology generates 3774 all items indices for all states and theFCT.
This edition of the Statistical News contains the revised Consumer Price Index (CPI) based on Nigeria Living Standard Survey (NLSS) 2003/2004. The consumption expenditure data were re-valued to November 2009, which is the base period for the revised CPI.
The May 2003 and September 1985 based indices are being continued using factors derived from the new CPI. All of these indices will yield the same price change for any commodity group contained in all the series. A new sub index – Imported Food Index- is available in the revised CPI.
Note: The urban and rural indices were weighted with the ratio of their populations to the national i.e. 0.455 and 0.545 respectively to compute the composite indices at the 12 COICOP functions and all items levels. This may cause variance between a recalculated all items index using the weights published on table 2 and the published all items index because the published weights were computed only from consumption expenditure survey result. The following breakdown highlights a non-exhaustive list of the components of the current CPI:
ALL ITEMS INDEX In August 2012, the composite Consumer Price Index which measures inflation rose to 11.7 percent year-on-year (compared to 12.8 percent in July). The relative moderation in the index is attributable to the relative slower rises in both the Food and “Core” indices partly as a result of aggressive monetary policy initiatives by the Central Bank of Nigeria, base effects and a much lower rise in several food prices such as yams, tubers and vegetables due to the harvest season. In particular, the Food index exhibited a sharp increase in August 2011. The implication is that year-on-year changes in August this year were muted due to higher prices in August of the previous year. In August this year, most classes under the food index increased, but again, only in relative moderation. It should be noted that the All-Items (headline) Index is made up of the Core Index and Farm Produce items, while Food Index is made up of Farm Produce items as well as Processed Foods. As Processed Foods are included in both the Core and Food sub-indices, this implies that these sub-indices are not mutually-exclusive. On a monthly basis, the composite CPI was higher by 0.67 percent when compared with July 2012.
In August, the urban inflation rate was recorded at 14.4 percent year-on-year while the Rural index indicated a 9.7 percent year-on-year increase. The Urban All Items index increased by 0.69 percent month-on-month, while the corresponding Rural index increased by 0.66 percent, when compared with the preceding month.
The percentage change in the average composite CPI for the twelve-month period ending in August 2012 over the average of the CPI for the previous twelve-month period was 11.8 percent. The corresponding 12-month year-on-year average percentage change for urban and rural indices was 12.4 and 11.4 respectively.
FOOD INDEX The composite Food Index increased year-on-year by 9.9 percent to 135.9 points in August 2012, down from 12.1 percent in July 2012. On a year-on-year basis, the relative moderation of food prices over the month of August could be attributable to a significant base effect. During the same period last year, the food index increased sharply by 2.7% partially as a result of higher fish, and tuber prices, as well as fruits due to the fasting period. As this was rather uncommon, the year-on-year percentage change in August 2012 reflects a lower year-on-year estimated due to the sharp increase in August 2011. The Food Index was also higher than levels recorded in July of this year by 0.7 percent. The appreciation in the Food Index was largely across all major class lead by higher prices in fish, oils and fats, and meats. The increase in the Food sub-index were also partially driven by increase in imported foods prices. According to the FAO’s Food Price Index which measures the monthly change in international prices of a basket of food commodities, while food prices remained unchanged between July and August this year, prices are still relatively higher, after reaching a minimum in July 2012.
This is also combined with lagged effects of higher prices of wheat, flour, and other by-products have partially contributed to the rise in the food index as the import duty on wheat, grains and flour in particular increased effectively by 20 percent and 100 percent respectively in July.
ALL ITEMS LESS FARM PRODUCE The “All items less Farm Produce” index which excludes the prices of volatile agricultural products rose by 14.7 percent year-on-year in August 2012, compared to 15.0 percent in July. On month-on-month basis, the core index increased by 0.6 percent during the same period. The rise in the Core index is partly attributable to higher prices of clothing materials, medical services, hotel and restaurant prices, and accommodation services, among others. The average 12 month annual rate of rise of the index was 13.3 percent for the twelve-month period ending August 2012.
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