By Emeka Anaeto

A major concern for economic policy 
executives and the average households in Nigeria today is the inflationary pressure which compounds the woes of the citizens.

In its ‘Selected Food Price Watch’ for the month of April 2022 the National Bureau of Statistics, NBS, shows that the average price of 1kg of Beans (white, black eye, sold loose) rose on a year-on-year basis by 44.32% from N359.64 in April 2021 to N519.05 in April 2022. Also, on a month-on-month basis, this increased by 2.59% from N505.94 in March 2022. The average price of Bread Sliced 500g increased on a year-on-year basis by 35.31% from N332.95 in April 2021 to N450.51 in April 2022. On a month-on-month basis, the average price of this item increased by 0.61% in April 2022. Similarly, the average price of 1kg Yam tuber on a year-on-year basis, rose by 42.88% from the value recorded in April 2021 (N252.80) to N361.20 in April 2022.

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On a month-on-month basis, it increased from N353.56 in March 2022 to N361.20 in April 2022, indicating 2.16% growth. In the same vein, the average price of Palm oil: (1 bottle, specify bottle) increased by 45.59% from N578.86 in April 2021 to N842.75 in April 2022. It also grew by 0.06% on a month-on-month basis.

In overall, Nigeria’s inflation rate rose to 16.82% in April 2022, following a similar uptick recorded in the previous month as a result of the increase in energy and food prices. This represents the highest rate recorded since August 2021.

The 16.82% rise was 0.9% points higher than the 15.92% recorded in the previous month (March 2022). On a month-on-month basis, the headline index increased by 1.76% in April 2022, compared to 1.74% increase recorded in the previous month.

Food inflation rose to 18.37% in the review month, an increase compared to the 17.2% recorded in the preceding month.  NBS said this rise in the food index was caused by increases in the prices of Bread and cereals, Food products, Potatoes, yam, and other tubers, Wine, Fish, Meat, and Oils.

On a month-on-month basis, the food sub-index increased to 2% in April 2022, up by 0.01% points from 1.99% recorded in March 2022.

There are indications that the increases would be sustained in the May and June reports before a possible slowdown in food inflation if harvest season effect kicks in. But experts believe that imported inflation will continue to trend up due to difficulties around foreign exchange market.

These call for tough decisions by the citizens in terms of consumption and investment.

But the central strategy should revolve around how to hedge or protect your finances from inflationary devaluation. In fact the front-loading strategy is recommended where it is possible to increase the value of your assets ahead of the inflation curve.

The secret to making money in an inflationary climate is to hold investments that appreciate faster than the inflation rate.

The issue of high inflation is nothing new to Nigeria. In fact, since February 2015, the country has maintained an inflation rate above 10%, causing a significant decrease in the purchasing power of the Naira.

The increase in the prices of goods and services ranks high on the list of risks investors face. Inflation has a rather insidious effect on the average investor’s portfolio as you must constantly generate returns above inflation to achieve real progress toward financial goals.

What this means is that, with the current inflation rate rising to16.82% as in April 2022,

the average Nigerian investor must have generated returns above 20% to preserve their wealth or value of their investments within the same period.

Note that this issue isn’t peculiar to Nigeria alone; the globalized nature of the world means that an industrial strike in Brazil could affect the prices of commodities in France, and an event halfway around the world could affect your hometown. It’s hardly surprising that supply chain disruptions caused by pandemic-related lockdowns and recently exacerbated by the Russia-Ukraine conflict continue to truncate the supply of essential commodities worldwide, keeping the prices of goods high.

However, for countries like Nigeria with a volatile economy, the situation is grimmer. If you are inclined to invest, you have your work cut out in constantly generating returns above inflation to achieve real progress toward your financial goals.

So, how do you invest during periods of high inflation?

The current economic climate looks bleak when considering certain factors, but it’s not all doom and gloom. The good news is that there are ways for you to preserve your hard-earned wealth from the corrosive impact of inflation.

The secret to making money in an inflationary climate is to hold investments that appreciate faster than the inflation rate. This is conceivable because not all assets are adversely affected by inflation. What you need to do as an investor is identify the best ways to mitigate the effects of inflation on your investments.

Here are a few ways to deploy your finances wisely, so you can stay afloat even when the economy appears to be sinking. 

Grow investments, rather than savings accounts

The first position or repositioning you should do is to de-emphasise cash holdings in form of savings. Even with the recent increase in the Monetary Policy Rate, MPR, by the Central Bank of Nigeria, CBN, to 13% would not significantly
boost interest rate on bank deposit accounts. The rates would still hover around 10% – 15% for fixed deposit which is significantly below inflation rate meaning you are incurring losses in that financial asset. It is even far worse when you leave money (you are not using in the immediate term) in your savings or current account.

Hence it is advised you begin to move your funds away from cash to non-cash assets/ investments. 

Invest in Commodities

Research shows that inflation is often linked to the supply and demand of crucial commodities, and the prices of commodities typically appreciate during inflation. Thus, commodity investors can benefit significantly during periods of high inflation.

To keep your head above water, you can invest in physical commodities or commodity-focused funds, which invest in derivatives linked to a specific commodity or a basket of commodities.

Another way you can invest in commodities is to purchase stocks of commodity-producing companies like miners and oil producers, as they tend to generate higher revenues and profits during periods of commodity-led inflation.

However, keep in mind that commodities are highly volatile and sensitive to fluctuations in demand and supply.

Invest in Stocks

In principle, investing in stocks should protect investors against inflation. This is because an increase in prices should lead to higher revenues and thus boost profits and share prices.

However, this is not always the case, as different sectors fare differently in times of inflation, and not all businesses enjoy sufficient pricing power to pass on rising costs to customers.

When it comes to investing, you should focus on strong companies with pricing power and high barriers to entry. You can also look to companies dealing in strategic sectors like hard commodities and Fast-Moving Consumer Goods (FMCGs), which benefit from inflationary forces. 

Invest in Real Estate

As inflation rises, so do property valuations, and landlords would be inclined to charge higher rents. This results in higher rental income for owners of the property. So, when you purchase landed property, you place yourself in the position to benefit from the rising cost of real estate.

You can gain direct exposure to real estate by buying properties directly. Alternatively, you can delve into Real Estate Investment Trusts (REITs) if you cannot afford entire properties to invest in a unitized way. 

Shift to Short-Duration Fixed Income

Suppose you are concerned about the impact of rising inflation on your assets, particularly fixed-income investments. You may want to consider moving away from long-term bonds.

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Comments expressed here do not reflect the opinions of vanguard newspapers or any employee thereof.