CPI rebasing might spark debt to equities shift —Consultants

Consultants have mentioned that the rebasing of Nigeria’s Shopper Worth Index might result in a shift from debt devices to equities.

They famous that the adjustment, which displays a brand new methodology for calculating inflation, might affect funding selections within the capital market.

Earlier, The PidomNigeria reported that Nigeria’s headline inflation dropped to 24.48 per cent in January 2025 following the rebasing of the Shopper Worth Index, in keeping with the Nationwide Bureau of Statistics. This represents a decline from the 34.80 per cent recorded in December 2024.

Commenting, the Chief Government Officer of Highcap Securities, David Adonri, mentioned the decline in headline inflation resulted from the brand new methodology deployed by the Nationwide Bureau of Statistics to calculate CPI.

He mentioned, “The market continues to be finding out the scenario as a result of it feels like a movement with out motion. The colossal discount within the weighting of meals to reach on the new determine is contentious. Even prior to now, inflation figures didn’t affect equities. Nonetheless, it elevated the yield on debt however not proportionately as a result of up until final 12 months there was a detrimental return on debt.”

He defined that if the rebasing is taken severely by traders, it might cut back the yield on debt and trigger a migration to equities. He mentioned, “Because of the excessively excessive yield on debt earlier than this rebasing, a number of international portfolio investments flowed into debt. Consequently, a drop in debt yield could cause an exodus from public debt, which can have an effect on the success of sovereign debt points. Traders might subsequently resolve to be extra lively in equities to the extent that sovereign danger permits.”

Nigeria’s final CPI rebasing was in 2014, and the usual requirement is to rebase each 5 years. Analysts opine that Nigeria ought to have rebased a lot earlier to replicate inflationary pressures extra precisely.

Nonetheless, the Chief Economist/Managing Editor of Proshare, Teslim Shitta-Bey, mentioned the rebasing wouldn’t affect international inflows, including that there is no such thing as a vital shift within the economic system.

He added, “We knew there could be rebasing and a discount in CPI. We already projected the inflation adjustment, and we weren’t far off. What we’re taking a look at is the GDP. Nigeria ought to have rebased a lot earlier.”

“I don’t count on any change in financial coverage. The reality is inflation is kind of excessive, and there needs to be a decent financial place. I additionally don’t assume there will probably be a rise within the financial coverage charge. The Worldwide Financial Fund just lately mentioned that if the Central Bank of Nigeria had not tightened the rate of interest, inflation would have been worse. Importantly, now we have to maintain it at this low charge,” he acknowledged.

He mentioned many of the decline within the inflation charge is short-lived, including that the Central Bank of Nigeria is prone to preserve its present stance to watch the affect of different insurance policies on financial stability.

“Traders have already made selections in fastened earnings, and it’s not in regards to the rapid affect however the development. The adjustment to inflation is prone to have a short-term affect on cash market charges,” he mentioned.