underlying inflation
Underlying inflation is the steady, stubborn rise in prices left over after you strip out the noisy jumps caused by fuel, food and other volatile items.
In plain English
Why does the NBS keep talking about two different inflation numbers every month, and which one should you actually believe?
Here is the thing. Headline inflation is the number that grabs the news, the one that jumps around because tomatoes flooded the market last week or fuel prices shot up overnight. Underlying inflation, sometimes called core inflation, ignores those noisy items and asks a quieter question. If you remove food and energy, is everything else, rent, transport fares, school fees, clothing, still creeping up steadily? That steady creep tells you something headline numbers hide, which is whether inflation has settled into the economy's bones or whether it is just a passing storm.
Think about a Lagos trader who notices garri prices doubled one month because of a bad harvest, then fell back the next month when supply improved. That swing is real, but it is not the whole story. Meanwhile her shop rent, her transport costs and her children's school fees have been rising by a smaller but steady amount every single month for two years. That second pattern is underlying inflation, and it is the one the Central Bank of Nigeria watches closely when deciding whether to raise interest rates, because it shows whether inflation has become sticky rather than seasonal.
In the United Kingdom, the Bank of England does the same thing. Petrol prices can spike because of a war somewhere far away, but the Bank cares more about core services inflation, things like haircuts, restaurant meals and rent, because that tells them whether high prices are becoming a habit rather than a one off shock.
For someone in the diaspora sending money home, this matters more than it seems. If underlying inflation in Nigeria is climbing steadily, the ₦200,000 you send this month will buy noticeably less in six months, even if the headline number looks calm because fuel prices happened to drop that particular week.
Suppose Nigeria's headline inflation reads 28% because of a sudden spike in tomato and pepper prices. Strip out food and energy, and underlying inflation might sit at 22%. That 22% is the slower, steadier rise in things like rent and transport, the number that tells the central bank inflation is more than a seasonal wobble.
Questions people ask
Why does the government or central bank care about underlying inflation more than headline inflation?
Because headline inflation can jump around due to one off events like a bad harvest or a fuel price shock, and reacting to every jump with interest rate changes would be like overcorrecting your steering for every pothole. Underlying inflation shows the steady trend, which is a better guide for setting interest rates.
Does underlying inflation affect ordinary prices in the market?
Yes, indirectly. It reflects what is happening to the everyday cost of things like rent, transport and services, away from the volatile swings in food and fuel. If it is rising steadily, expect your general cost of living to keep climbing even when headline inflation looks like it is easing.
How can I find Nigeria's underlying inflation figure myself?
The National Bureau of Statistics publishes it alongside headline inflation in their monthly Consumer Price Index report, usually described as inflation excluding food and energy or sometimes called core inflation.
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