Nigerian Stocks: What August Inflation Drop Means for Equity Investing

Nigeria’s stock market has once again outpaced inflation, giving investors a strong case for optimism. With inflation easing steadily, the gap between nominal and real returns is widening, creating more opportunities for equity investors.

In 2024, the All-Share Index (ASI) delivered a 37.65% year-to-date gain, outstripping the inflation rate at the time. This year, the market has been even more impressive. By August 2025, the ASI had gained 36.1% and has since climbed to 38% as of yesterday’s close. This sits comfortably above the August inflation rate of 20.13%.

The implication is simple. As inflation cools, investors enjoy wider positive real returns. Beyond that, listed companies are beginning to show stronger bottom lines, higher dividend payouts, and improved investor sentiment. Together, these factors could sustain the rally and push shareholder returns higher.

Inflation and Real Returns

When inflation slows, the spread between nominal returns and real returns tilts in favor of investors. As of August 2025, ninety-nine listed stocks were delivering year-to-date returns above July’s inflation rate of 21.88%. With inflation dropping further to 20.13% in August, that number has grown.

By contrast, only sixty-five companies managed to beat the inflation rate of 34.80% in 2024. This shift shows how disinflation is broadening the pool of stocks offering real returns.

The same logic applies to fixed income, but performance lags behind equities. The latest Treasury Bill auction cleared between 15.35% for 90-day paper and 17.44% for the 364-day. The 10-year 12.50% FGN January 2026 bond is trading at 17.74% yield to maturity. With inflation at 20.13%, these instruments still post negative real returns.

For now, equities remain the clear winner.

Sector Dynamics

Easing inflation is doing more than improving nominal and real returns. It is also boosting consumer spending and creating room for growth across industries.

Consumer Goods

The consumer goods sector has been one of the brightest spots. The Consumer Goods Index gained 84% by August and has since surged to 91.3%. This is a sharp improvement compared to 40.46% by August 2024 and 54.44% by year-end 2024. These numbers comfortably outpaced inflation, rewarding investors with strong positive real returns.

The turnaround in profitability has also been dramatic.

• In 2024, major players including BUA Foods, Nestlé, Nigerian Breweries, NASCON, Cadbury, International Breweries, and Dangote Sugar reported a combined N867 billion loss over two years. Losses were driven by over N1 trillion in FX hits and N365 billion in finance costs.
• By Q1 2025, fortunes had shifted. The group swung from a N418 billion loss in Q1 2024 to a combined profit of N289.8 billion, with FX losses turning into a modest N2.5 billion gain.

The combination of easing inflation and FX stability is strengthening fundamentals and improving sentiment.

Banking

Banks and other financial institutions also stand to benefit. Lower inflation means households and businesses will have more disposable cash, making it easier to service loans. This reduces impairment charges for banks while supporting core operating profitability.

If disinflation continues, the Central Bank may eventually soften its hawkish stance. A more accommodative policy could lower funding costs, stimulate loan growth, and further reduce default risks. For investors, this paints a supportive picture of the sector.

Investment Perspective

The bigger picture is clear. Falling inflation improves real returns, boosts disposable income, and strengthens company earnings. For investors, this makes equities an attractive play. Consumer goods, banking, insurance, and industrial stocks are leading the rally and providing gains well above inflation.

The September 22, 2025 Monetary Policy Committee (MPC) meeting will be critical. While the Monetary Policy Rate is likely to remain at 27.5%, the tone of the committee will be watched closely. A firm commitment to disinflation will reassure investors, while any dovish hints could unlock more upside for equities.

With the ASI already up 38% year-to-date, easing prices are providing fresh momentum for sustained positive real returns. Nigerian stocks are not just keeping up with inflation. They are outpacing it.