Nigeria’s inflation rate (11.4%) in February is rising at the fastest clip since 2012, and eroding purchasing power for investors and consumers alike.
What are the lessons from this for Nigerian Investors and consumers? Nairametrics offers some:
Seek positive inflation adjusted returns
The rising inflation is eroding any capital that is not earning a higher rate of return.
This means it is not a good time to be in cash, Treasury bills that currently yield about 8% in the secondary market and the broad stock market which is down about 10% year to date.
Real Estate Investments (land, commercial or residential property) however are a perfect hedge for such inflationary periods as they are known to adjust perfectly to inflation.
Investors in real estate also get to earn a rental yield, even as their property value rises annually often higher than the inflation rate.
Expect tighter CBN monetary policy
The Central Bank of Nigeria (CBN) has been fighting two loosing battles, one against inflation and the other against maintaining an artificial value for the naira.
With the FG set to pump some N6 trillion into the Nigerian economy once the budget is signed, expect some mopping up of liquidity from the CBN, especially if it intends to maintain an artificially strong Naira.
Losses to increase on bond portfolios
The price of Fixed Income assets such as bonds lose value as inflation accelerates, meaning investors will see increased loses on their fixed income bond portfolios, especially those that are expected to mark to market.
Consumers to be more value conscious
For retailers this is the time to bring out promos and value propositions for consumers who are becoming more price sensitive.
This will affect everything from groceries to beer to data plan for phones and other gadgets.
Sadly Savers are getting screwed
It is a really bad time to be a saver in most of our commercial banks. While the Inflation rate is in double digits most savings rates offered by commercial banks are in the 1 – 2 percent range for savings accounts and a maximum of 7 percent for term or fixed deposits.
Nairametrics would soon be analysing all major banks to bring to our readers those with the most favourable savings rate.
