Inflation

Illustration of inflation. Photo: Premium Times.

Nigeria’s 15.43 per cent inflation rate may be strengthening the case for money-market instruments offering returns above the inflation threshold, as investors increasingly focus on preserving the real value of their naira holdings.

Nigeria’s headline inflation rate fell to 15.43 per cent in July 2026, representing a 0.48 percentage-point decrease from the 15.91 per cent recorded in June.

The development is particularly significant in a fixed-income market where treasury bills and Open Market Operations securities are currently offering yields above the latest inflation rate.

At the treasury bills auction conducted on 12 August, the 91-day bill cleared at 16.30 per cent, the 182-day instrument at 16.50 per cent, while the 364-day bill closed at 17.59 per cent.

The 103-day OMO bill cleared at 20.39 per cent, while the 138-day instrument recorded a yield of 20.01 per cent.

This means they all offered rates above inflation, meaning that they provided the investors with real positive returns.

At 15.43 per cent inflation, an investment yielding 20 per cent would provide a nominal premium of 4.57 percentage points over inflation. On a compounded real-return basis, the investor would earn nearly four per cent before taxes, fees and other costs.

“For investors, the relationship between inflation and fixed-income yields is critical. When yields rise above inflation, money market assets can generate positive real returns, making them more attractive than holding cash or investing in instruments whose returns lag the pace of price increases,” said a Lagos-based fixed income analyst, Ikediani Obikwelu.

The development could also raise the hurdle rate for equities and other risk assets.

An investor earning a relatively low-risk return above inflation from treasury bills or OMO securities may demand a higher potential return before accepting the additional volatility associated with equities.

This does not necessarily mean money-market instruments will replace equities. Rather, investors are likely to compare the expected total return from shares with the inflation-adjusted returns available in fixed income.

For example, an equity offering a dividend yield of 10 per cent may appear less attractive in isolation when a government-backed short-term instrument is offering more than 16 per cent. However, the equity could still attract investors if strong earnings growth and capital appreciation are expected to produce a significantly higher total return.

The inflation rate could therefore become an important benchmark for asset allocation decisions.

Analysts say if inflation continues to decline while fixed-income yields remain elevated, real returns on money-market instruments would improve further. Conversely, if yields fall faster than inflation, investors could begin searching for alternative assets capable of delivering stronger inflation-adjusted returns.

“The Central Bank of Nigeria’s government securities data tracks yields across treasury bills, OMO and other securities, making the spread between inflation and fixed-income returns an important indicator for investors assessing where to deploy capital,” said a former central banker, Chukwunonso Iheoma.

“A combination of easing inflation and still-elevated short-term yields could create a favourable environment for fixed-income investors in the near term, while simultaneously increasing competition for funds across asset classes,” he added.