Inflation in Nigeria refers to the consistent rise in the general price of goods and services over time, leading to a decrease in the currency’s purchasing power. Types of inflation experienced in Nigeria include Hyperinflation, characterized by rapid price increases, Deflation, where prices drastically drop, and Stagflation, a prolonged period of stagnant inflation. The Keynesian school attributes inflation to demand and cost pressures, such as demand surpassing supply or high production costs. The Monetarist perspective links inflation to money supply, suggesting that managing the supply of money is crucial for controlling inflation.
If you are someone with a good grasp of the Nigerian finance history, you would agree with us that 1 Naira was once equivalent to 1 US Dollar, but now a USD is worth around 360 Naira. What did you think was wrong with the Nigerian economy when the price of a “congo” (cup) of rice rose from 50 Naira to as high as 500 Naira in 2016? As a matter of fact, during the regime of President Goodluck Jonathan, the Central Bank of Nigeria proposed a bill to introduce a higher currency of ₦5,000 (Five Thousand Naira Note – which was later rebuffed by the then president) into the economy to help reduce this increasing economic problem. What then is this increasing economic problem?
This economic issue is called inflation, a persistent or consistent increase in the general or average price of commodities and services in an economy within a course of time. In other words, inflation involves a gradual decrease in the purchasing strength or value of a country’s currency over a period of time. This type of economic dilemma comes in different types and is usually measured/represented in rates or percentages.
Before the discovery of crude oil in Nigeria in the year 1956, the country’s economy survived majorly on the trade of agricultural products such as cocoa, cassava, and kola nut. The discovery of oil resulted in a huge influx of money into the country’s treasury to the extent that Yakubu Gowon (a former Nigerian head of state) said that “money is not Nigeria’s problem, but how to spend it.”
The Nigerian economy started to experience a form of rising inflation in 1982 when the demand for crude oil in the global market dropped dramatically. And although Nigeria was and still is the highest producer of crude oil among the Organisation of the Petroleum Exporting Countries (OPEC), the constant fall in the price of crude oil in the foreign market continues to leave the economy of Nigeria in a struggling state.
Furthermore, the price of commodities such as rice, garri, beans, and other food items started to rise over time, such that a “congo” (a cup) of rice which used to be 50 Naira rose to as high as 600 Naira in 2015/2016. Petrol also which was sold around 20 Naira per litre in 1999 rose to ₦500+ in 2015/2016, and is now sold at 147 Naira per litre today.
Inflation comes in different forms or types, some of which include creeping Inflation, Hyperinflation, Galloping Inflation, Walking Inflation, Core Inflation, Stagflation, Deflation, Asset Inflation, Wage Inflation, and many more. However, we are going to discuss on the following 3 as they have more direct relevance to the Nigerian situation.
Several schools of thought exist as regards the factors that cause inflation, however, the most popular is the Monetarist and the Keynesian.
The Keynesian theory states that the major causes of inflation are demand and cost of commodity pressures, these are otherwise known as Demand-Pull Inflation and Cost-Push Inflation.
The Monetarist school believes that the supply of money into a country’s economy determines it’s inflation rate. To the monetarists, the only way to curb inflation is to prudently manage the supply of money. This theory was realised to an extent in Nigeria during the post-oil boom era when the reduction in the inflow of money resulted in rising inflation in the economy.
As we mentioned earlier, the status of inflation in an economy is measured in rates, and as of May 2019, the annual consumer price inflation in Nigeria was calculated at 11.40%. Although this has dropped to 11.22% in June, there is still a likelihood of increase.
Inflation has the tendencies of destroying a country’s economy if adequate measures are not employed by the government to curb it. Inflation control measures include:
This article centres on the subject matter of Inflation especially as it relates to Nigeria. We discussed the history of inflation in Nigeria, the types of inflation in Nigeria, schools of thoughts regarding factors that cause inflation in Nigeria, the current inflation rate, and potent measures that can be used by the government to keep inflation in check.
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