price index
Price Index is a single number that tracks how the average cost of a basket of goods changes over time, so you can tell if life is getting pricier.
In plain English
Why does everyone keep saying inflation is at this percentage or that percentage, and where exactly does that number come from?
It comes from something called a price index, and it is actually a simple idea wearing a complicated looking suit.
Statisticians pick a basket of things ordinary people buy, garri, rice, transport fares, rent, school fees, phone data, and they check the total cost of that basket every month.
They compare today's total to what the same basket cost at some starting point, called the base year, and turn that comparison into a single number, usually starting at 100.
If the index moves from 100 to 115, it means that basket now costs 15 per cent more than it did at the base year, and that is the story behind the inflation figures the National Bureau of Statistics releases every month in Nigeria.
In the United Kingdom, the Office for National Statistics runs a similar exercise with the Consumer Price Index, tracking everything from bus fares to bread, and it feeds directly into decisions the Bank of England makes about interest rates.
Say the Nigerian basket cost ₦50,000 in the base year and the index was set at 100. A year later, the same basket costs ₦57,500, so the index reads 115, telling you prices have risen by 15 per cent over that period, even before you check any single item's price on its own.
Questions people ask
Is a price index the same thing as inflation?
Not quite. The price index is the number itself, the level. Inflation is the rate at which that number changes from one period to another, usually shown as a percentage.
Why does my personal cost of living feel different from the official index?
The index tracks an average basket for a typical household, but your own spending pattern might be heavier on things like transport, data, or school fees that are rising faster or slower than the average, so your felt inflation can differ from the headline figure.
Who decides what goes into the basket?
National statistics agencies, like Nigeria's National Bureau of Statistics or the UK's Office for National Statistics, survey household spending patterns regularly and update the basket so it still reflects what people actually buy.
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