Analysts caution investors on inflation
Some analysts have advised equity market investors to stick to stocks with strong fundamentals to weather the storm of persistently rising inflation.
The National Bureau of Statistics on Monday released the Consumer Price Index (inflation figure) for December which stood at 28.92 per cent from 28.20 per cent in November 2023. This signified a 0.72 percentage point increase when compared to November 2023.
It said, “On a year-on-year basis, the headline inflation rate was 7.58 per cent points higher compared to the rate recorded in December 2022, which was 21.34 per cent. This shows that the headline inflation rate (year-on-year basis) increased in December 2023 when compared to the same month in the preceding year (i.e., December 2022).
“Furthermore, on a month-on-month basis, the headline inflation rate in December 2023 was 2.29 per cent, which was 0.20 per cent higher than the rate recorded in November 2023 (2.09 per cent). This means that in December 2023, the rate of increase in the average price level is more than the rate of increase in the average price level in November 2023.”
Major contributors to inflation were food and non-alcoholic beverages (14.98 per cent), housing, water, electricity, gas and other fuel (4.84 per cent), clothing and footwear (2.21 per cent), transport (1.88 per cent), furnishings and household equipment and maintenance (1.45 per cent), and education (1.14 per cent).
Food inflation continues to outperform general inflation. In December 2023, the food inflation rate was 33.93 per cent.
Reacting to the development, analysts at Arthur Stevens Asset Management Limited projected that there will be a further increase in the inflation figure this month and advised on the strength of the trend that the equity market was the best place to play albeit on stocks with sound fundamentals.
“We see scope for a further rise in inflation in January 2024 on the back of an elevated increase in energy price coupled with lingering insecurities challenges in the food producing region.
“We recommend a strong play in the equities market as the YtD return is currently 13.20 per cent as at the time of this writing. Furthermore, we recommend that investors should tilt towards stocks with strong fundamental justification,” said the report which was released on Monday.
Analysts at Cowry Asset Management Limited, who had projected a headline inflation rate of 28.89 per cent for December, with an average annual inflation rate of 24.52 per cent for 2023, posited that “The trajectory of inflation in 2024 will hinge on the efficacy of governmental policies aimed at addressing structural challenges in agriculture, energy, and infrastructure. Stability in the exchange rate is deemed imperative to regulate import costs and alleviate inflationary pressures.”
They added that since efforts by the monetary authority to fight persistent inflation had yet to yield results, the next monetary policy committee meeting of the Central Bank of Nigeria will be faced with a decision on whether to adopt a tightening stance or a more cautious approach to monitor inflationary movements while deliberating on key economic indicators that will shape growth and recovery.
“We believe that a moderate uptick in the headline numbers will skew the voting pattern of the committee members in favour of maintaining a tightening stance by between 25 basis points and 50 basis points,” they projected.
