When CPI Breaks, So Do Real Returns

In February 2025, Nigeria’s headline inflation rate fell overnight from 34.8% to 24.48%. Prices had not suddenly become cheaper; the Consumer Price Index (CPI) had been rebased. The immediate market reaction was predictable: yields compressed and fixed income rallied. More importantly, the rebase obscured a fundamental investment signal: the real return on cash. 

Much of the debate focused on whether inflation had genuinely fallen or whether the lower figure simply reflected a change in methodology. The more significant issue, however, was technical and carried real investment implications: the old CPI series and the new one did not connect cleanly. Without a continuous series, investors could no longer observe a consistent history of Nigerian real returns.

Rebasing itself is not unusual. Countries regularly update CPI baskets to reflect evolving consumption patterns. The problem is not the rebase itself, but the break in comparability across time. When continuity breaks, inflation stops being a clean signal and becomes a source of analytical risk.

That risk is particularly acute in emerging markets, where CPI is not a standardized input. Methodology changes can alter real yield signals, distort cross-country comparisons, and break historical datasets. Put differently: if the inflation series is broken, every downstream investment decision built on it risks becoming distorted. Without adjustment, investors risk allocating capital based on statistical changes rather than underlying economic reality.

For pension fund administrators and asset managers, the implication is straightforward: benchmark performance against purchasing power, not nominal yields. If a portfolio is not generating positive real returns, wealth is being eroded regardless of what the account balance shows. 

At its core, CPI is a model: a weighted basket designed to approximate household consumption. It measures inflation, but not necessarily lived experience, making methodology as important as the data itself.

Nigeria’s old CPI series, based on November 2009, reflected a very different economy: 740 items, weights derived from the 2003/04 Living Standards Survey, and food accounting for 51.8% of the basket.

The rebased series, using a 2024 average base, expanded to 934 items with updated 2023 weights. Food fell to 40.1%, restaurants and accommodation rose from 1.2% to 12.9%, and a new insurance and financial services category was added. These are meaningful updates. Consumption patterns have changed.

The problem is continuity.

The old index ends in December 2024. The new one begins in January 2025. No official chain-linked historical series was published, and month-on-month changes do not align cleanly across the break.

The result is a discontinuity large enough to imply implausible price movements. One estimate suggests the rebased data implies a 12.3% price decline in a single month—far beyond Nigeria’s historical experience.

Without a continuous series, inflation becomes a weaker input for investment decisions.

To restore continuity, we applied the IMF’s standard chain-linking methodology for CPI base-period changes.

December 2024 served as the overlap point between the old and new CPI series. Using that overlap, we derived a linking factor of 0.11523 and rescaled the historical data onto the new base.

The result is a continuous CPI series spanning 204 monthly observations from February 2009 to January 2026: 191 back-tested months from the old series and 13 live months from the new one.

No interpolation. No estimation. Month-on-month changes are preserved through the splice, and every calculation is reproducible from published NBS and CBN data.

We then paired the CPI series with 91-day Nigerian Treasury bill stop rates to construct the Venoble Nigeria Cash Real Return Index (VNG-CRR), using a simple framework: CPI, T-bill yields, and the Fisher equation compounded into an index.

The result is stark:

• Nominal return: +9.48% annualized
• Real return: –5.48% annualized

The investor looked richer in naira and poorer in real life.

Put differently, ₦1 million invested in 91-day T-bills in February 2009 would have grown to roughly ₦4.7 million by January 2026. Adjusted for inflation, its real value would be closer to ₦380,000.

Start with pension allocation. Nigeria’s pension assets reached ₦26.66 trillion as of October 2025, with roughly 60%, or about ₦16 trillion, invested in government securities. If the real return on government paper has been negative for most of the past 15 years, then millions of retirement savers were not just earning low returns. They were losing purchasing power while their nominal balances increased.

This is not unique to Nigeria. The OECD’s 2024 pension report, using 2023 data, found that pension systems in Nigeria, Angola, and Egypt, where more than half of assets are allocated to bills and bonds, delivered negative real returns. Recent increases in Nigeria’s pension fund equity allocation limits are directionally positive. But they are modest relative to the scale of the problem.

Under the old CPI methodology, a 91-day T-bill yielding 18% against inflation at 34.8% was clearly negative in real terms. Under the rebased CPI, a yield of 15% against inflation of 15.15% appears roughly neutral. Has the underlying reality improved, or has the measurement changed?

The answer is both.

Inflation has genuinely moderated. Monthly CPI increases fell below 1% for several consecutive months in the second half of 2025. But the rebase also lowered measured inflation by roughly 10 percentage points. Without a continuous series, it is difficult to separate these effects.

What is clear is that the sign has shifted.

From August 2025 through January 2026, real returns turned positive for six consecutive months. January 2026 was the strongest month, with a +4.39% real return, driven by a 2.88% month-on-month decline in CPI alongside a 1.38% nominal T-bill return. The real return index rose from 984 to 1,027, above its base level of 1,000 for the first time.

After 15 years of negative returns, cash is no longer guaranteed to destroy purchasing power. Whether that shift proves durable remains an open question.

We do not yet know how durable the current disinflation trend will be.

Base effects complicate the picture. Because the rebased CPI sets December 2024 at 100, year-on-year comparisons in late 2025 could appear distorted even if underlying inflation remains stable. Investors relying too heavily on headline YoY figures risk mistaking arithmetic for economics.

There is also a more fundamental question: whether the new CPI basket accurately reflects the cost of living for the median Nigerian.

A 12.9% weight for restaurants and accommodation may capture urban consumption patterns in Lagos or Abuja. It is less representative of lower-income or rural households, where food and transport dominate. CPI measures a standardized basket. It does not necessarily measure what life feels like for the median household.

That distinction matters. After a rebase, inflation becomes as much a function of methodology as of prices themselves. A continuous real return series helps bridge that gap, but does not eliminate it.

Over 204 months, the hurdle rate required merely to preserve purchasing power was negative. Any asset generating positive real returns has outperformed cash.

Equities are one example. The Nigerian Exchange Group (NGX) All-Share Index returned 51.19% in 2025. Select real estate markets and dollar-denominated instruments accessed through NAFEM also cleared the hurdle.

With real yields now positive, the calculus changes. Cash is no longer guaranteed to destroy wealth. But 15 years of compounded losses are not reversed in six months. The real return index stands at 1,027, only marginally above its base, and would require sustained positive real returns to recover the purchasing power lost over the prior decade.

Nigeria has Africa’s largest economy and the continent’s largest pension assets. Yet its data infrastructure for institutional investors remains underdeveloped.

In more mature markets, investors have access to:

• Inflation-linked securities
• Transparent real policy rates
• Established, rules-based indices

These tools anchor expectations and help investors measure real returns consistently. Nigeria, by contrast, has a CPI series with a structural break and no official chain-linked alternative.

The gap is not analytical capacity. Local research houses produce high-quality work. The gap is infrastructure: auditable, rules-based benchmarks that market participants can independently verify.

Without them, investors are left to rely on:

• Disconnected data series
• Inconsistent methodologies
• And competing interpretations of the same underlying reality

A transparent, reproducible real return benchmark helps close that gap. It gives investors a consistent reference point for evaluating performance across time and asset classes.

Nigeria’s CPI rebase improved the inflation methodology, but it broke the time series.

Reconstructing that series reveals a hard truth: over the long term, cash has delivered negative real returns. Recent improvements may mark a turning point, but the evidence is still too short to call it a durable trend.

For investors, the lesson is simple. Measure performance in real terms. Preserve continuity in the data. Benchmark against purchasing power, not nominal yields.

When the inflation series breaks, every decision built on it becomes less reliable.