Nigeria’s stock market has continued to outperform inflation, offering investors positive real returns.
With inflation easing steadily, the gap between nominal and real returns is widening further.
In 2024, the ASI closed with a year-to-date gain of 37.65%, above the inflation rate at the time.
This year, the market is doing even better: the ASI delivered a 36.1% gain by August 2025 and has since risen to 38% as of yesterday’s close, comfortably above the August inflation rate of 20.13%.
This implies that as inflation eases, positive real returns will widen further. Beyond that, listed companies are likely to see stronger bottom lines, higher dividend payouts, and improved investor sentiment, all of which could sustain a share price rally and enhance total shareholder returns.
Inflation and real returns
When inflation falls, the gap between nominal returns and real returns widens in favor of investors.
As of August 2025, 99 listed stocks offered YtD returns above July’s inflation rate of 21.88%. With inflation dropping further to 20.13% in August, that number has also grown.
By contrast, in 2024, only 65 listed companies managed to beat the inflation rate of 34.80%. This highlights how disinflation is expanding the scope of stocks delivering real returns.
This concept also applies to fixed-income assets, although the fixed-income market still lags in equities. The most recent Treasury Bill auction cleared between 15.35% (90-day) and 17.44% (364-day), while the benchmark 10-year 12.50% FGN January 2026 bond trades at 17.74% YtM.
With inflation at 20.13%, these instruments still deliver negative real returns.
As inflation continues to ease, the gap between nominal and real returns will improve across asset classes, but equities may remain firmly in the lead.
Sectorial situation
Declining inflation does more than improve nominal and real returns; it also supports consumer spending.
With easing prices, purchasing power is likely to improve, boosting revenues and profitability across listed companies.
Consumer Goods
The consumer goods sector has shown remarkable growth, though that might not be attributed to easing inflation alone.
The Consumer Goods Index gained 84% by August and has since risen to 91.3%, a sharp improvement from 40.46% by August 2024 and 54.44% at year-end 2024.
Importantly, these returns outpaced inflation, delivering investors strong positive real returns.
Apart from easing inflation, there has been a rebound in profitability.
- In 2024, seven major players: BUA Foods, Nestlé, Nigerian Breweries, NASCON, Cadbury, International Breweries, and Dangote Sugar, posted a combined N867 billion loss over two years, weighed down by N1 trillion in FX losses and N365 billion in finance costs.
- By Q1 2025, the picture had flipped. The group swung from a N418 billion loss in Q1 2024 to a combined N289.8 billion profit, with FX losses turning into a N2.5 billion gain. This turnaround highlights how easing inflation, coupled with FX stability, is already filtering into stronger fundamentals and investor sentiment.
With easing inflation, consumer disposable income and purchasing power are expected to rise, boosting companies’ revenues and profitability.
Banking
The banking sector, along with other financial institutions, also stands to benefit from easing inflation. As inflation slows, disposable incomes and corporate cash flows are likely to rise, enabling borrowers to better service their loans.
This will reduce banks’ impairment charges while strengthening core operating profitability and overall bottom lines.
Moreover, sustained disinflation could eventually prompt the CBN to soften its hawkish stance. A more accommodative policy would lower banks’ funding costs, stimulate loan demand, and further reduce default risks.
Together, these dynamics create a supportive outlook for the sector, reinforcing investor confidence.
Investment perspective
The big picture is clear: easing inflation improves real returns, boosts disposable income, and strengthens corporate earnings.
For investors, this translates to a stronger case for equities, particularly in consumer goods, banking, Insurance, and Industrial, which are already leading the rally and offering returns above the inflation rate.
The September 22, 2025, MPC meeting will be pivotal.
- While the MPR is expected to hold at 27.5%, the tone of the Committee will matter.
- A continued commitment to disinflation will reassure investors, while any dovish tilt could further unlock upside for equities.
Overall, with the ASI already up 38% YtD, well above inflation, easing prices provide the fuel for sustained positive real returns.
Nigerian stocks are not just keeping pace with inflation; they are beating it.
