Interpreting an inflation report requires a clear understanding of specific terms, such as percentage change, percentage point change, and other terminologies.
A good mastery of these terms will enhance one’s ability to accurately analyse and interpret economic data.
Percentage change measures the rate of change in a value compared to an earlier period, while percentage point change is the numerical difference between two percentages.
Thus, percentage change measures change in numbers, while percentage point change measures change in percentages.
Percentage change is calculated by taking the difference between the final and initial values, divided by the initial value, and then multiplied by 100.
For example, if the price of petrol increased from N600 in July 2023 to N770 in July 2024, the percentage increase is 28%.
The formula for percentage increase (or decrease) is:
((New Value – Initial Value) / Initial Value) * 100
On the other hand, percentage points describe the absolute change when comparing percentages. It is simply the difference between the final and initial values.
For example, the difference between 24.08% and 33.40% is 9.32 percentage points.
It’s important to know the difference between percentage change and percentage points while analysing economic statistics, especially when talking about inflation.
Inflation measures the rate of increase in the prices of goods and services over a period. It captures the overall rise in prices, reflecting the increase in the cost of living in a country.
Nigeria’s inflation figures are categorised into Headline, Core, and Food Inflation:
Headline Inflation is the rate of change in prices across all items, including food, beverages (both alcoholic and non-alcoholic), healthcare services, clothing and footwear, housing, water, gas, transport, communication, recreation and culture, education, restaurant services, and miscellaneous goods and services.
Core Inflation measures the rate at which prices of all items except food increase.
While food Inflation calculates the change in prices of food items alone, such as bread, meat, fish, rice, and other selected food products.
Inflation rates are determined by calculating changes in the prices of items using three metrics: month-on-month change, year-on-year change (%), and 12-month average.
The month-on-month change provides a monthly analysis of the change in the price of items compared to the previous month.
The year-on-year change compares the price of an item in a given month with the price of the same item in the corresponding month of the previous year.
A decline in the rate of inflation does not always show a decline in prices; rather, it may indicate a slower rate of price increases.
Having a thorough comprehension of these ideas facilitates decision-making and helps one comprehend the wider economic ramifications.