THE IMPACT OF INFLATION IN NIGERIA ECONOMIC DEVELOPMENT

1.1 Introduction of Inflation

Inflation as it exists in Nigeria is a national scourge which has been plague in the economy since after the end of Nigeria civil war in 1970 .Immediately after the sharply and have remained high since then .Unfortunately , Nigeria inflationary trend has defied all known economic thieves especially not been religiously executed.

Inflation, or rising prices, as we now know it began in Nigeria during and after the Nigeria civil war (that is, from 1965 to 1970). Before war, a long big of 500 cups of rice was #43.00 immediately after the war in 1970.

The price fell almost to its pre-war level seven years later in 1977. Between 1973 and 1975, the price of a packet of sugar rose from 20k, Omo soap detergent from 80k to 35k, and Bournvita beverage from 80k to 1.35k. Since 1978 prices have been rising steadily and have become the concern of the government and the Nigeria people.

War or military conflict creates a favourable condition for inflation. This was clearly the case during the Nigeria civil war. Secessionist Biafra in particular, faced hyperinflation. Everything was scarce relative to the demand. Arable land had been time be the federal drops. The people depended on relief foodstuffs form abroad.

The federal Nigeria government placed an embargo on anything coming to secessionist Baifra. The Biafra government printed and circulated paper currency notes. This fuddled the inflation further. A cup of salt cost N16 in the Biafra enclave as against its pre-war price of 2k. People referred holding money in foreign currency.

The US dollar was exchanged from N60 Biafran notes as against its pre-war rate of 67k. it was jokingly said that some people in Biafran made pillows and mattresses with their worthless Biafra notes. On the federal side, huge sums of money were pumped into the economy to prosecute the war- workers were withdrawn from the field and elsewhere, and sent to the war front occasioning storages in most goods and services.

All those actions meant more money but less goods. There was an inevitable crash at the end of the civil war and many people were ruined. The type of inflation that existed during the civil war is a good example of the galloping inflation or hyperinflation.

As we have pointed out, inflation is inevitable during a war. What is most disturbing is past-war inflation. Excepts for a very short period in 1977, inflation has been persisted in Nigeria since the end of the civil war. This has been a source of concern to the people and government of Nigeria because it effects the cost of living and the standard of living of the people.

Who should take the blame for Nigeria's increasing inflation. Some blame the traders, retailers, hoarders, black marketers, profiteers and other business people. they are accused of being unpatriotic and unscrupulous for unnecessarily raising the price of commodities.

Are they really responsible for it? The truth is that the people who are accused are often not the real cause of the inflation. They are businessmen and are in business to make profit. They are only taking advantage of the opportunity given to them by market forces.

The second factors in Nigeria's inflationary trend in monetary. Price have been rising because many people including the government have been having very much money to spend and have been spending it. Speaking about ‘Monetary credit and price level.' in the 1983 federal budget presentation, President Shehu Shagari stated as follows:

The levels of money supply have been rising and total credit to the domestic economy by the banking system rise by about 50%. Between 1980 and 1981. The increase in the credit to the economy was largely accounted for by the phenomenal increase in the credit to the public sector, which rose by about 94%. The reason for this is that the government was left with no alternative but to resort to deficit financial since the petroleum sector, which remained the main source of public revenue started to encounter problems in 1981.

The national consumer price index also rose by 20.8%. The Federal Government revenue dropped by about 21.4%. Although revenue from customs and exercise duty rose marginally, the financial position of both the federal and state governments has not been satisfactory. They resorted to deficit financing.

The federal government did this by raisi8ng additional external loans, and internal loans through treasury bills or certificates and development loans stocks. The state governments also borrowed externally and internally to maintain their services.

By 1986 inflation in Nigeria had completely gone out of hand. As already noted, the price of a medium sized packet of soap detergent rose from 80k in 1985 to N3.80 in 1986. Similarly, a bag of rice rose in price from N43 in 1970 to N300 in 1986. The inflationary trend worsened when the government announced in August 1986, its intention to operate a secondary foreign exchange markets (SFEM). Speculations that this was a signal for devaluing the naira, with consequent increase in general prices, further sky-rocketed the prices of commodities and thus, worsened the inflationary situation in the country.

In the face of a persistent inflation and fully aware of the danger inherent in uncontrolled or rising prices.

By 1987 inflation rising prices goods and services was almost normal but as from 1988 — 1989, it was so high and uncontrollable, and was 7.5%. The budget in 1990 was deficit, which was N22 billion and insufficient to the expenditure or elimination of inflation.

From 1992, the inflation rate was moving so rapidly and never control till 1996 when it was controlled, but in 1991 much talked about increase in income but never implemented minimum wage. In 1994 much advertised increase in income but helpless Abacha promised. Also 1999 Abdusalaami's hope rising salary increase in income.

2000 president Obasanjo's living wage and 2002 expected 25%. Salary increase in income, followed by increasement in fuel price and other inflation in price of goods and services in 2002/2003 and 2004.

The only time inflationary rate dropped to an appreciable level in Nigeria economic development was in 1972 when 2-7% rate was officially recorded. This was short living or lived as the rate rose to 33.9% in 1975.

Before SAP era in 1986, inflation has gone up to unofficially estimate rate of 50-60 and from then, the stage was set for till today, which is about 96.5% rate in elimination.

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1.2 Statement of the Problems

The state of the problems will rise from the impact of inflation in the economic development.

Central bankers are united in their determination to curtail inflation. During period of high inflation, opinion polls often find that inflation is economic enemy number one. What is so dangerous and costly about inflation? We note above that during period of inflation all price and wages do not move at the same rate of change in relative prices as a result of diverging relative prices of definite effect of inflation are:

1. A redistribution of income and wealth among different groups.
2. Distribution in the relative prices and outputs of different goods, or sometimes in output land employment for the economy as a whole.

The Impact On Income and Wealth Distribution

The major distribution impact of inflation arise from difference in the kinds of assets and liabilities that people hold (the important elements of balance sheets) when people owe money a sharp rise in price is a windfall again for them. Suppose you borrow $100,000 to buy a house and your annual fixed interest rate mortgage payments are $10,000. Suddenly a great inflation doubles all wages and salaries and income. Your nominal mortgage payment is still &10,000 per year, but its real cost is halved. You will need to work only half as long as before to make your mortgage debt or payment.

The great inflation has increased your wealth by cutting in half the real value of your mortgage debt.

The major redistributive impact of inflation occurs through its effect on the real value of people's wealth. In general, unanticipated inflation redistributes wealth from creditors to debtors, helping borrowers and hurting lenders. An unanticipated decline in inflation has the opposite effect. But inflation mostly churns income and assets, randomly redistributing wealth among the population with little significant impact on any single group.

There are many impact created in economic development of Nigeria such as:

1. Impact on economic efficiency
2. Impact on economic growth etc.

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1.2.1 Research Question

Some if the research questions which arise in the cost of research may be basically on the problem of the particular subject. Some of the questions arise in the cost of the problem are as follows:

1. What is the optimal rate of inflation?
2. How long is the long run?
3. How much does it cost to reduce inflation?
4. Can we lower the lowest sustainable unemployment rate?
5. Can we eliminate or adapt to inflation and what are the costs of eliminating inflation?

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1.3 Objective of the Study

The objective of this study, impact of inflation in the economic development of Nigeria based on understanding the system of controlling the substantial sustained increase (rise) in average prices (of goods and services to aid the economic development of Nigeria).

Increase In Savings:

In a high inflationary situation, people are discouraged to save because money looses its value very fast as rate of inflation increase. Besides, more of people's income is spent on basic necessities of life because of their higher prices.

The reduction in price of goods and services and increase in productivity may aid to increase saving.

The system of increasing production of raw material and reduction of the cost of production.

The high production input obviously lead to high production cost, but when the raw materials is excessively produce, the cost of production will be reduce to normal cost.

To Increase Investment:

The direct consequence of a low interest rate is that it leads to high investment especially if such investment can generate enough returns to cover the interest rate.

Investors are often encouraged to borrow when interest rate is low. The increase in investment due to low interest rate which enhance the economic development.

Low Interest Rate:

The low interest rates enhance development and encourage the investors to borrow money for investment.

Increase Employment in the Economy:

The increase in new investment, the increase in employment.

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1.4 Significant of the Study

The importance of the study is over state in the objectives but few will be explain. The main significance of this study is to remove or reduce the effects of inflation in economic development of Nigeria.

In the other hand understand the system, to reduce the rate of inflation and increase the development of the economy.

According to the definition which says that inflation is the substantial, sustained increase in average price of goods and services. This definition lies in the words ‘Substantial' and sustained here means reasonable increase.

The study let us to know the system to deflate the price of goods and services to increase the economic development of the country Nigeria.

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1.5 Scope of the Study

The study can be carried in all fields but has some scope. The study of inflation and the impact of it in economic development in Nigeria. Many visit or touch the types and cause of inflation. Thus study may lead to observe the system of control of inflation in our urban and rural area of the country Nigeria.

The extent of inflationary rate may from 1980 — 2001, which also may contain the history and events happened previously.

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1.6 Assumption of the Study

This research work is based on the following assumption:

1. The assumption will co-operate by assessing the researcher's project work, reading it and making necessary corrections.
2. The sample respondents are the true representatives of the entire populations.

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1.7 Limitation of the Study

In the course of written the project 1 experience a lot of constraints which want to restrict it. Such constraints are as follows:

Time Constraints:

Time is waiting for man sometime but man waits time to come. Sometimes 1 spent many time for researching but at the end, no fact will be obtained. Since some time 1 spent all time in other activities.

Financially:

Any research without money will be ineffective and inefficiency to accumulate. Finance constraint is another restriction in my research.

Accessibility Constraint:

Accessibility of facts, that is relevant is another problem inculcated during my research processes.

Availability:

Availability of facts is another problem. Sometimes 1 might see any fact for the research, and sometimes available fact will be insufficient and few will be relevance to be use.

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1.8 Definition of the Terms

Inflation:

This is the substantial increase in price of goods and services. (According to R. J. Riffing) defines that inflation is the general rise in price of goods and services and can be occur for different reasons.

Deflation:

This is the substantial sustain decrease in price of goods and services.

Substantial Sustain Increase In Price:

The continuity of particular prices to rise without any restriction increase.

Semi — Urban Environment:

This means the different levels of urbanization to different people in different locality.