CAUSE, EFFECT SOLUTION OF INFLATION IN NIGERIA

1.0 Introduction

1.1 Background of Study

Every country in the world aim at achieving economic growth and development. This is only possible if a country has adequate sources. In developing countries especially those in sub-Saharan Africa. The resources to finance the optimal level of economic growth and development are in short supply.

Inflation, economic growth and interest rate concepts that are central and interrelated in Macro economic. A proper understanding of these concepts is therefore very necessary in order to get a good grasp of how inflation and interest rate has effected growth in Nigeria over the past eleven years. Is from this view that gives what have been expressed by various people to theoretical and empirical relationship that has been estimated between them.

Inflation is said o occur when the genral level of prices rises rapidly and persistently over a givebn period of time. This is undesirable to the public and policy makers. From this of view of the public inflation causes uncertainty about future prices. This effect decisions on expenditure, savings, investment and misallocation of resources. It also allows substantial in distributions of income and wealth from savers to borrowers. To policy makers, inflation hampers economic growth and development as it discourages investment and savings. These factors explain why policy makers put in lots of efforts to reduce inflation and why several authors focus attention on this issue. Inflation is now one of the intractable problems facing the Nigeria economy.

Having registered low rates of inflation in years immediately after independence. The country experience double digit in 1960. this was as a result of the civil war. The next period of high inflation was (1974- 1979), when the wage freeze was discontinued as recommended by Udoji salary review commission.

Reduction of the high inflationary pressure is considered one of the most critical Macro- economic objectives in Nigeria. A number of approached to the explanation of the phenomenon of inflation have been suggested and tested in the economic literature. Thus such concept of inflation has been suggested in the economic literature. Thus such concept of inflation has been popularized including Demand Pull inflation which occurs when aggregated demand rises faster than aggregated supply another form of inflation is cost push which occurs when price increase, its originated from supply side of economy either through profit push or wages push resulting from trade union action. For structural inflation, it seeks to explain the long term tendency of prices especially in the industrialized western countries.

There do also exist monetarists. It explains and observes inflation rate in different countries to respective growth rate of money supply. Inflation can be transmitted from one country to another, this is usually referred to as imported inflation and occurs when a country engages in international trade. Inflation has various effect on the economy as a whole of which economic growth and interest rate are of great important. These three variables are interrelated. There are many indicators of economic growth, for the purpose of this research study.

Finally, the relationship between inflation, interest and economic growth will be fully examined. It should be noted that interest rate are to help in mobilization of financial resources and to the promoting or promotion of economic growth and development. Interest rates effect the level of consumption on the hand, it is one of the major tools of monetary policy. It was regulated and controlled by the central bank of Nigeria.

The direct and magnitude of changes in market interest rate are of primary importance to economic agents and policy makers. Economic growth is an increase in the average rate of output produced per person, usually measured on per annum basis. Interest rates are the rental payment for the use of credit by borrowers ad return payment with liquidity by lenders.

Inflation is neither new in the economic system of Nigeria nor the world at large. Variations in magnitude or rates have been noticed to be in existence.

In Nigeria the rate of inflation was about 10 percent between 1969 and 1970. Prices rose by about 14 percent in 1970 (immediately after the civil war of 1970). Then fell to 3 percent in 1972. Rose by about 16.1 percent in 1974 and reached a rate of about 34 percent increase in 1975.

In the 80's, the rate of inflation between 1908 and1982 was around 30 percent with the rest of the 80's at the rate of 40% averagely.

The 90's were at the rate of 40 to 50% between 1990 to 1992 and then 1994 rate was officially put at above 60 percent. Inflation was and is still the greatest task to government's policymakers in the 1990's.

In the world, between 1979-1801, prices rose by more then 50 percent. Also between 1939-1941, the prices level was record to be almost what it was before.

The height of Herry V111's debasement in England (through the mint reducing the weight of remitted coins, lowering their gold and silver content, and increasing the normal value of existing coins by assigning them higher values as well as melting down plate and ornament taken from the ransacked monasteries), and prices between many 1542 and mid 1551, had an inflationary rate of 16 percent per annum 23 percent during war with France and almost 30 percent during the first world war. This is about the highest rate attained in the world history.

It is now evident that inflation persists both in the developed and developing countries, with difference in magnitude or rates. The rate is developed countries making comparison with present situations, as the above noted rates were attained during the seventeenth century and the early part of the eighteenth century (1799-1801), and the early to mid parts of the nineteenth century (1939-1951).

In the case of Nigeria, the rates were attained in the rate nineteenth century (1969-1975).

Inflation simply refer to a continuous or in –- rise in prices.

According to Webster's seventh new collegiate dictionary, inflation is defined as an increase in the volume of money and credit relative to available good resulting in a substantial and continuous rise in the general price level. This definition points out the fact that inflation cannot occur unless there is undue increase in the volume of money and credit. This brings about continued rise in general price level of goods, which in not being matched by the proportionate quality of goods and service in the economy.

Inflation become significant in Nigeria after the Nigeria civil war thought it might have been in existence long before then.

Immediately after the Nigeria civil war, prices took an upward turn from their previous level due to the shortage of goods and services, caused by the disruption of productive factors by the civil war.

Furthermore, the caused factor of salaries and wages review should not be left unmentioned. The review started with the Adhoc Award of 1970 which was followed by the Udoji and William Awards of 1974. all these awards intensified the inflationary pressure.

Also, the high prices if imported goods arising from increases in foreign prices and instability of international exchange rates. Surcharge from post congestion, storage facilities, marketing arrangements plus the distribution new work.

The issue of gradual remove of the remaining 20 percent on oil subsidy is the most current inflationary element in the Nigeria economic system.

If inflation were to every one in exactly the same way and degree, it would have no importance what so ever. It's social significance arises from the fact that it always does affect people differently. It's effect on have wife (A) would differ from it's effect on house wife B depending on personality income and family. Whether in village or town are of relevance to the study.

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1.2 Statement of Problem

The inflationary period is a time of high prices of goods and services this lowers the quantity and type of products (goods and services) purchasable by the messes in Enugu state at any point in time. The problem posed is that Enugu dwellers others in the society are unable to purchase types (quality) and quantities of desired products during inflation.

During inflation, income (especially of those fixed income earners and the very poor ones in the society) are unable to match the increasing prices of goods and service. This continues as long as rising prices and falling purchasing power persists. The problem as the ability of masses to purchase products” in the light of continued rising prices become reduced.

Equally of importance is the issue of inflation giving rise to the different societal classes, thereby creating gaps in the society with income as the distinctive factor. There is a high gap between incomes of fixed incomes earners and the profit earners. This is because the profit earners incomes tend to rise with the rising price of products as opposed to those of the fixed income earners.

It is also worth while to note that during an inflationary period, saving decline. This is because a decline in savings results in low investment, whereas low investment retards economic growth.

The pertinent questions to ask here is how will the masses be able to purchase the desire mix of products. How will the fixed income earners be able to maintain their standard of living at periods pf continued rising prices? How do poor masses make both ends meet under a situation of declining purchasing power?

How will the government bridge the gap between the fixed income earners and profit earners?

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1.3 Objectives of the Study

The objective of the researcher is:

1. To find out how inflation can be reducing in Nigeria through co-operative
2. To find out low the negative effect of inflation on income can be corrected or averted.
3. To identify the class of workers that inflation affect most

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1.4 Research Question

1. What are the method used to reducing inflation in Nigeria?
2. Is there any negative effect on income distribution?
3. What are the class of workers involved in this effect?
4. Does the income distribution enable the individuals to survive in Nigerian economy?
5. To make recommendation based on the finding?