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As Nigeria’s high inflation threatens to undo citizens’ financial strength, it is crucial to take proactive steps to stay afloat in this harsh economy, JOSEPHINE OGUNDEJI, writes
Inflation is like a hidden thief, quietly stealing the value of your money without you even noticing. Imagine you have a bucket of water every time you take a step forward, you watch it slowly leak out. At first, it might seem like a small trickle, but over time, it adds up.
Even if your bank balance stays the same, the purchasing power of that money steadily shrinks. This is inflation at work: it doesn’t just reduce the number in your savings account; it quietly erodes what you can do with it.
Let’s say you’ve been working hard, saving every extra naira to buy a new phone. You set a budget, cut out unnecessary expenses, and after months of discipline, you finally reach your target. You’ve done the math, and you’re ready to make the purchase. But when you walk into the store, the price has shot up far beyond what you planned for. The phone you were eyeing has become more expensive, and suddenly, your carefully saved-up money isn’t enough anymore.
That’s inflation, the silent intruder that doesn’t announce itself but keeps taking, little by little, from what you’ve worked so hard to save.
In Nigeria, this is not a rare occurrence, inflation is something we encounter every day. From the rising cost of food, fuel, and transport to the soaring prices of goods and services, the signs are all around us.
As inflation continues to outpace the interest rates offered by traditional savings accounts, simply parking your money in the bank is no longer a reliable strategy, the hard-earned naira you save today may not have the same value tomorrow, let alone in a few months.
So, what can you do? The answer lies in thinking beyond the traditional savings model.
In a high-inflation economy, you need to be smarter with your money. Instead of letting inflation chip away at your savings, explore investment options that offer higher returns or more protection against inflation. Look for avenues that preserve the value of your money over time, such as real estate, stocks, or even inflation-linked securities.
While these options may carry some risk, they also hold the potential to protect your wealth and even help it grow, allowing you to stay one step ahead of the financial leak caused by inflation.
Inflation rate
Nigeria’s inflation rate surged to 33.88 per cent in October 2024, up from 32.70 per cent in September, according to the Consumer Product Index report released by the National Bureau of Statistics, recently.
The movement indicated a 1.18 per cent point increase month-on-month.
On a year-on-year basis, the headline inflation rate was 6.55 per cent points higher than the rate recorded in October 2023 which was 27.33 per cent.
“On a month-on-month basis, the Headline inflation rate in October 2024 was 2.64 per cent, which was 0.12 per cent higher than the rate recorded in September 2024 (2.52 per cent).
“This means that in October 2024, the rate of increase in the average price level was higher than the rate of increase in the average price level in September 2024,” the executive summary of the report partly read.
On a month-on-month basis, the food inflation rate in October 2024 was 2.94 per cent which shows a 0.30 per cent increase compared to the rate recorded in September 2024 (2.64 per cent).
“The rise can be attributed to the rate of increase in the average prices of Palm Oil, Vegetable oil, etc (Oil & Fats Class), Mudfish, Croaker (Apo), Fresh fish (Obokun), etc (Fish Class), Dried Beef, Goat Meat, Mutton, Skin meat, etc (Meat Class), and Bread, Guinea Corn flour, Plantain flour, Rice, etc (Bread and Cereals Class).
“The average annual rate of food inflation for the twelve months ending October 2024 over the previous twelve-month average was 38.12 per cent which was an 11.79 per cent points increase from the average annual rate of change recorded in October 2023 (26.33 per cent),” the report read.
Ahead of the release of the data, some analysts projected that Nigeria’s inflation figure for October will hit 33.48 per cent from 32.70 per cent in September.
Nigeria’s inflation has experienced significant fluctuations throughout 2024.
This persistent rise was primarily driven by steep increases in food and transportation costs following the removal of fuel subsidies and continued naira depreciation, compounded by insecurity and flooding in the agricultural belt of the nation.
Earlier in the year, inflation hit 33.2 per cent in March, following a February rate of 31.7 per cent. June marked a peak at 34.19 per cent, the highest in nearly 30 years, before easing slightly in subsequent months due to seasonal harvests.
However, inflation began climbing again in September. This uptick was driven primarily by higher energy costs, with petrol prices rising from N980 to around N1,050 per litre in Lagos and even higher in other states.
According to Money Africa, In Nigeria, inflation is more than just a number, it is something we see every day, from rising food costs to transport fare hikes.
It stated, “Unfortunately, simply parking cash in a savings account may not cut it, as inflation has outpaced the interest rates offered by banks. This is why it is essential to get creative with your savings to stay ahead of inflation’s effects.
“In a high-inflation economy, it is best to go beyond a standard savings account, which usually offers a low interest rate that doesn’t keep up with rising prices. Instead, look into options that provide higher returns or more stability.”
Money Africa further gave ways inflation can be hedged against to save naira, as highlighted below:
Digital savings platforms
Some financial technology platforms offer savings plans with interest rates higher than banks. These accounts offer better interest rates than regular accounts, though they still might not fully outpace inflation.
Money market accounts
These accounts invest in short-term, low-risk instruments such as treasury bills and commercial papers. They offer slightly higher returns than a standard savings account, making them more resilient to inflation. You’ll enjoy some stability and liquidity meaning, you can access your funds fairly easily if you need them.
Government treasury bills
Treasury bills are short-term investments issued by the government, which makes them low-risk. They pay out slightly higher returns than traditional savings, so they’re worth considering in high-inflation times. Even though T-Bills might not completely offset high inflation, they do provide a better hedge than keeping your money in cash.
Diversifying your savings into foreign currencies or assets
In Nigeria, it is no secret that the naira’s value can fluctuate. When a local currency is rapidly losing value, foreign currency investments can help you hedge against inflation because currencies like the US dollar, euro, and British pound are more stable than the naira, and they tend to appreciate relative to it over time. By converting part of your savings into these currencies, you gain a shield against naira devaluation and inflation.
Dollar savings accounts:
Digital savings platforms such as Ladda also offer dollar savings accounts, allowing you to save directly in dollars. It will help preserve the value of your money while still earning interest in dollars. If you have most of your expenses, obligations, and future plans in dollars, for example, professional examinations, “japa” plans, or goods and services to be paid for in dollars, then you must seek dollar-saving opportunities.
Traditional savings might not be sufficient to preserve the value of your hard-earned naira in an economy with significant inflation like Nigeria. To truly beat inflation in the long run, saving might not be enough and investing becomes essential. Money should be invested, not saved. The value of your money can be preserved and even increased by selecting the appropriate saving options, diversifying into foreign assets, and implementing investment techniques intended to outperform inflation.
The company noted that the goal was simply putting naira to work in ways that counteract inflation’s effects.
Meanwhile, an online savings platform, PiggyVest, said protecting one’s money against inflation begins with educating oneself about earning, spending, and investing.
It stated, “By reviewing your budget and diversifying your investments with a focus on high-yield returns, you can prevent inflation from eroding your purchasing power.”
When it comes to investing, it’s important to remember that this is not a get-rich-quick venture, but rather a long-term commitment that comes with risks.
A diverse portfolio of inflation-proof assets (assets that maintain the same value or appreciate over time) can help you hedge against inflation in Nigeria. And there are different types of investments in Nigeria. A few of them are:
Stocks
Buying stocks is a great way to protect your money from inflation. A stock is a tiny fraction of equity in a company, and like every kind of investment, buying stocks comes with a degree of risk. Market conditions can cause the value of a stock to decline or appreciate, but good stocks tend to perform well in the long term. You can buy and sell stocks in Nigeria on the Nigerian Stock Exchange.
Bonds
A bond is a fixed-income security that constitutes a loan lent to a government or institution for a period and is typically used to finance projects, especially with government-issued bonds used to supplement revenue or make up budget deficits. Most bonds are lower-risk investments, where investors are regularly paid interest and receive their investments at an agreed-upon maturity date.
Real estate
In Nigeria, real estate is one of the more common types of tangible assets. It is a property type that consists of land and/or the building(s) on it. Apart from bare land, real estate can be residential, commercial, industrial, or special-purpose property.
Property rights give you ownership of the land and its fixtures. In real estate investment, you earn interest as the value of the land appreciates or from renting or leasing the property. So don’t just buy real estate for the sake of it; strategically purchase property in fast-developing areas, and the value of your property will appreciate over time.
Mutual funds
Mutual funds are another innovative way to protect your money from inflation in Nigeria. It is a type of investment where individuals pool funds together to buy assets like stocks, bonds, money markets, etc. When you buy shares in a mutual fund, you become a co-owner of all the securities in the fund’s investment portfolio. The fund’s value depends on the performance of all your assets, and a mutual fund manager oversees this portfolio.
Other commodities
Many commodities are inflation-resistant as their intrinsic value comes from constant demand and global appeal. Tangible assets like gold and silver are examples of hard commodities that constantly increase in value, particularly in inflationary times. Nigerians can also invest in energy commodities (e.g., crude oil) or soft/agricultural commodities like soybeans, millet, sorghum and millet.
The company further advised that focusing on high-yield returns was essential to lessen the impact of inflation. It added, “In inflationary times, you do not want spare cash idling in your account, losing purchasing power by the day. Focus your efforts instead on high-yield savings and investments to mitigate the effects of inflation on your finances.”
