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By Chukwuma Umeorah
As with every fresh policy decision by the government, the recent rebasing of inflation figures and the Central Bank of Nigeria’s (CBN) decision to maintain the benchmark interest rate have sparked mixed reactions among shareholders and financial analysts.
The National Bureau of Statistics (NBS) recently announced a significant drop in the inflation rate to 24.48 per cent in January 2025, down from 34.80 per cent in December 2024, following the rebasing exercise. Concurrently, the CBN in its 299th Monetary Policy Committe Meeting in Abuja retained the Monetary Policy Rate (MPR) at 27.5 per cent, citing a stable foreign exchange market and a gradual decrease in inflation. However, many shareholders remain skeptical, questioning whether these figures truly reflect the economic realities faced by Nigerians.
Shareholders debate the reality of rebasing
Retail investors and shareholders, particularly those in the domestic market, have expressed serious doubts about the impact of the CPI rebasing. In a interview with Daily Sun, the national coordinator of the Progressive Shareholders Association of Nigeria (PSAN), Boniface Okezie, dismissed the new inflation figures as mere statistical adjustments that fail to capture the real cost of living.
“I don’t believe these numbers. The government claims inflation has dropped, but go to the market and see what people are paying for food, rent, and transportation. A loaf of bread that used to be N1,500 is now over N2,000. A crate of eggs that cost N1,500 two years ago is now N6,000. How does that indicate inflation is dropping?” Okezie queried. “Those at the NBS need to open up and tell the government the truth so that the real fundamental issues can be addressed. I strongly believe that those numbers are camouflaged and it is as though they are just churning them out to please the current administration,” he added.
Okezie further argued that the supposed reduction in inflation does not translate to any tangible relief for businesses. “If inflation has truly dropped, we should see it in the prices of essential goods and services. But nothing has changed. Companies will still struggle to pay dividends to shareholders because the cost of doing business remains high.” He emphasised that the rebasing should accurately capture the economic challenges affecting both consumers and businesses as ‘misleading statistics’ could undermine policy decisions and dampen investor confidence in the Nigerian stock market. “It’s all paperwork, let them go and see the real reality on the ground. As far as I’m concerned, inflation is still high, maybe around 40 per cent which is even beyond the previously reported figures,” he said.
Concerns over dividend prospects
Shareholders have expressed apprehension that the prevailing economic conditions, coupled with the reported inflation figures, may adversely affect company profits and consequently, dividend payouts. Okezie highlighted that businesses were grappling with increased operational costs, foreign exchange challenges, and high taxation, which could impact their profitability.
“Companies are facing multiple economic pressures, and if these conditions persist, it may be difficult for them to declare substantial dividends. This situation is worrisome for shareholders who rely on these returns,” Okezie noted.
He called on the government to create a more conducive business environment by addressing issues such as infrastructure deficits, policy inconsistencies, and bureaucratic bottlenecks that hinder business operations and investor confidence.
Foreign investment and market volatility
The Nigerian stock market has experienced volatility, partly due to the activities of foreign investors who often engage in short-term investments. Okezie pointed out that these investors tend to capitalise on low stock prices, make quick profits, and exit the market at the slightest sign of instability, leaving local investors vulnerable.
“Foreign investors are not committed to the long-term growth of our market. Their speculative activities contribute to market volatility, and when they pull out, it is the local investors who bear the brunt,” Okezie explained.
He advocated for policies that encourage long-term investments and protect the interests of domestic investors, such as incentives for companies to list on the Nigerian Exchange Limited (NGX) and measures to enhance market transparency.
Economists provide context on new figures
While some investors remain unconvinced, economic experts have attempted to explain the rationale behind the inflation rebasing exercise. According to the Managing Director of Arthur Stevens Asset Management and former President of the Chartered Institute of Stockbrokers (CIS), Olatunde Amolegbe, the adjustment was long overdue.
“There is a misunderstanding about how inflation is calculated. The rebasing exercise expanded the CPI basket to include a wider range of goods and services that reflect current consumption patterns. That means the total measure of inflation now accounts for more economic activities than before. What it does is provide a more comprehensive and accurate reflection of price movements by including more relevant goods and services. This helps in making better economic policy decisions,” Amolegbe explained.
Amolegbe also clarified that while the inflation rate had decreased statistically, this does not imply that prices have dropped or that the impact would be felt immediately. “Inflation measures the rate at which prices increase, not the absolute cost of goods. The fact that inflation has dropped does not mean prices have fallen, it means they are rising at a slower pace. The CBN Governor, Olayemi Cardoso, during his presentation at the last MPC meeting alluded to this and emphasised the committee’s decision to hold the rates,” he said.
He added that while some shareholders may feel disconnected from the reported numbers, it is important to consider the long-term benefits of having more precise economic indicators. “Inflation tracking is a complex process. If the economy is stabilising and exchange rates remain steady, we should see some positive outcomes in corporate earnings and stock market performance in the coming quarters,” he said.
Concerns over investor sentiment and market stability
Contrary to Okezie’s view on foreign investors sentiments, Amolegbe, believes that investors were more likely to take a long-term view.
“What matters to investors is stability. If the recent monetary policies help to curb inflationary pressures and stabilise the foreign exchange market, then investors will respond positively over time,” he said.
He pointed to recent improvements in exchange rate stability and declining fuel prices as signs that the CBN’s monetary policies were having some impact. “We are seeing reduced volatility in the forex market. If this continues, we could see renewed investor confidence,” he added.
NBS, CBN defend rebasing methodology
The Statistician-General of the Federation, Adeyemi Adeniran had explained that the rebasing of the Consumer Price Index (CPI) was conducted to provide a more accurate representation of current consumption patterns. The previous base year was outdated, and the new base year of 2024 aims to reflect the evolving market dynamics.
“The rebasing exercise is a standard statistical practice to ensure that our economic indicators accurately reflect the current realities. By updating the base year to 2024, we have incorporated changes in consumer behavior and market trends,” Adeniran stated during a press briefing in Abuja.
Adeniran acknowledged that while the headline inflation rate has decreased statistically, this does not necessarily translate to immediate price reductions in the market. He emphasised that the rebasing provides a more reliable framework for analyzing inflation trends over time.
Likewise, CBN MPC decided to keep the MPR unchanged at 27.5 per cent as Cardoso highlighted that the decision was influenced by the need to observe the effects of the recent inflation rebasing and to maintain stability in the financial markets.
“Maintaining the current interest rate allows us to monitor the impact of the rebased inflation figures and ensures that we do not introduce volatility into the financial system.
Our priority is to achieve price stability while supporting economic growth,” Cardoso explained.
Cardoso also noted that while the rebased inflation rate indicates a downward trend, the CBN remains cautious due to potential risks such as fluctuating food prices and global economic uncertainties. The bank aims to adopt a balanced approach in its monetary policy to navigate these challenges effectively.
Economic reforms and impact on inflation
The Nigerian government, under President Bola Tinubu, has implemented several economic reforms since 2023, including the removal of fuel subsidies and the devaluation of the naira.
These measures were intended to improve public finances and stimulate economic growth. However, they also contributed to an initial surge in inflation, which the government aims to control through various policy interventions.
The rebasing of the CPI is part of the government’s broader strategy to align economic indicators with current realities, thereby facilitating more effective policy formulation and implementation. By updating the base year and adjusting the basket of goods and services, the NBS aimed to provide a more accurate measure of inflation that reflects the true cost of living for Nigerians.
Although many Nigerians have challenged these numbers and some of the government decisions, policy makers insist that they are in the best interest of the populace and aimed at boosting economic growth.
