What 22% Inflation Mean To Your Investment and Purchasing Power

What 22% Inflation Mean To Your Investment and Purchasing Power

Inflation in Nigeria

The NBS released its monthly inflation figures, and it wasn’t good news. Inflation accelerated to 22.41% y/y, meaning prices rose 22% from May’22 to May’23. Essentially, the value of your money has eroded yet again, as you would need 22% more money to buy the same item you could buy a year ago. Meanwhile, on a month-on-month basis, Inflation accelerated 1.94%. The rise in inflation was majorly driven by rise in food prices.

Food inflation major driver of the uptick in inflation, rises to multi-year high

Food inflation experienced a moderate increase of 0.21%, reaching 24.82% year-on-year in May. This is the highest level seen since March 2005. The rise can be attributed to elevated processed and farmgate prices, which have contributed to the overall increase in food costs.

Additionally, on a month-on-month basis, food inflation rose to 2.19% in May. This slight uptick can be attributed to higher transportation prices, which have influenced the overall cost of food.

Investors real return further widens

For purchasing power to be preserved, investments would have to yield 22% or more. However, investors are in a negative real return, as yields are currently below the inflation value. For context, treasury bills (risk free investments) one year yield are doing around 8%, while inflation has hit 22%. This means that in reality investors have made a loss of 14%. Thus, we should be expecting more interest rate hikes as the monetary authority will strife to reduce the gap between inflation and investment returns.

What to expect in June? Brace up for even more inflation

The last few weeks have come with policy changes. From subsidy removal to the unification of exchange rates, and implementation of new tariffs. All of these have led to price increases across the energy sector. Transportation costs will come in higher, and eventually this will feed into higher commodity prices Thus, we expect June’s inflation figures to also come in higher.

What can you do?

Right now, the best option is still to make investments. It is better to have your money lose 14% of its value than 22%. Keeping your money in a bank account that pays little to no interest will result in a bigger devaluation of your purchasing power so, make investments!. Moreso, taking on riskier investments may put you ahead of inflation. For context, if you had invested in TOTAL stock, you would have gained 70% on stock price appreciation and another 9% yield on dividend payments. However, it is important to note that stock prices are highly volatile, so you should strive to assess your risk profile before making any investment decision. Nonetheless, the message is make investments! to protect your purchasing power.

Sign up for the newsletter

If you want relevant updates occasionally, sign up for the private newsletter. Your email is never shared.

Home

Marketplace

Learn

My Items

Home

Marketplace

Learn

My Items

More