CPI rebasing could spark debt to equities shift —Experts

Experts have said that the rebasing of Nigeria’s Consumer Price Index could lead to a shift from debt instruments to equities.

They noted that the adjustment, which reflects a new methodology for calculating inflation, may influence investment decisions in the capital market.

Earlier, The PUNCH reported that Nigeria’s headline inflation dropped to 24.48 per cent in January 2025 following the rebasing of the Consumer Price Index, according to the National Bureau of Statistics. This represents a decline from the 34.80 per cent recorded in December 2024.

Commenting, the Chief Executive Officer of Highcap Securities, David Adonri, said the decline in headline inflation resulted from the new methodology deployed by the National Bureau of Statistics to calculate CPI.

He said, “The market is still studying the situation because it sounds like a motion without movement. The colossal reduction in the weighting of food to arrive at the new figure is contentious. Even before now, inflation figures did not impact equities. However, it increased the yield on debt but not proportionately because up till last year there was a negative return on debt.”

He explained that if the rebasing is taken seriously by investors, it could reduce the yield on debt and cause a migration to equities. He said, “Due to the excessively high yield on debt before this rebasing, several foreign portfolio investments flowed into debt. Consequently, a drop in debt yield can cause an exodus from public debt, which may affect the success of sovereign debt issues. Investors may therefore decide to be more active in equities to the extent that sovereign risk permits.”

Nigeria’s last CPI rebasing was in 2014, and the standard requirement is to rebase every five years. Analysts opine that Nigeria should have rebased much earlier to reflect inflationary pressures more accurately.

However, the Chief Economist/Managing Editor of Proshare, Teslim Shitta-Bey, said the rebasing would not impact foreign inflows, adding that there is no significant shift in the economy.

He added, “We knew there would be rebasing and a reduction in CPI. We already projected the inflation adjustment, and we were not far off. What we are looking at is the GDP. Nigeria should have rebased much earlier.”

“I do not expect any change in monetary policy. The truth is inflation is quite high, and there should be a tight monetary position. I also do not think there will be an increase in the monetary policy rate. The International Monetary Fund recently said that if the Central Bank of Nigeria had not tightened the interest rate, inflation would have been worse. Importantly, we have to keep it at this low rate,” he stated.

He said most of the decline in the inflation rate is short-lived, adding that the Central Bank of Nigeria is likely to maintain its current stance to observe the impact of other policies on economic stability.

“Investors have already made decisions in fixed income, and it’s not about the immediate impact but the trend. The adjustment to inflation is likely to have a short-term impact on money market rates,” he said.