10 causes of inflation in Nigeria
inflation affecting Nigeria
Nigeria is a country of over 200 million people living in referent part of the country, majority of its population recites in the rural areas while 30% of its population is living in the urban areas. The country has faced the problem of inflation in the economy which made the prices of goods and services to increases in a very unbearable manner causing its people hardship and poverty. In this research we are going to be looking at the causes of inflation in Nigeria and how the government can resolve these problems so that the citizens can be able to have a good standard of living.
Generally the following could be said to be the cause of inflation in Nigeria:
1. Excessive money supply:
Excessive money supply through poor monetary policies or other method invariable lead to inflation, In Nigeria the 1974, udoji salary awards and the 1981 minimum wage act injected a lot of money in the economy which was the beginning of inflation in the Nigerian economy. Expansionary monetary policy is also a contributing factor to this problem.
2. Fall in the supply of goods and services:
Especially agriculture products, agriculture have suffered a setback in the years in Nigeria and are virtually abandoned in the country. It is only left to the old and aged people in the remote villages who practice subsistence farming using out dated method of farming. This shortage of commodities has been one of the most influential causes of inflation in Nigeria today. Rising wages also increase the production cost of running a farm or plantation. This thus has led to decrease in supply of commodities thereby causing rise in prices of goods and services in the economy.
3. Budget deficit or government expenditure programs:
Almost all the government of most African countries has been experiencing budget deficits since the 1990s. There is also enormous increase in government expenditure on development programs and other capital projects or expenditures. These have contributed greatly to inflationary trends in the past years.
4. imported inflation:
Almost all manufactured goods in Nigeria are imported from other advanced countries of the globe that are currently experiencing inflations in their economy especially with the global economy down trends. This means a direct importation of these higher prices to the African nations.
5. Rural- urban drift/ migration:
The mass drift to urban areas has left the agricultural sector unattended to, where by many young people are looking for white collar jobs in the urban areas aboundoning the agricultural sectors for the old people in the villages. Moreover, the little goods and services in the urban areas have now many mouths for them hence inflation results and increased.
6. Increase in population/population explosion:
There is enormous increase in population of Nigerians and other African countries and the whole world in general. For Nigeria, her estimated population increased from about 55 million in 1963 to more than 88.5 million in 1991 in 2006 it was estimated as over 150 million and with the current census in 2023 it is said and estimated to be around 250 million people in the country. The situation is worsened by the fact that majority of the population are children who fall under the unproductive sector of the society. There are, therefore, dependent on the working population hence they put pressure on the little goods and services available.
7. Activities of middle men and monopolistic tendencies:
There are too many middle men in the chain of distribution of goods and services in Nigeria. For instance, these people are very exploitative hence they hoard available goods in order to sell higher prices in the black markets. Many others who have the influence from government quarters monopolize the supply of certain essential commodities, thereby charging higher prices than hitherto or what ought to be.
8. Excessive demand by consumers:
Increase in the purchasing power of consumer’s leads to higher demands and thus inflation set in, this is case in Nigeria due to higher wages resulting from frequent upward salary adjustment/revision.
9. Higher production cost:
Higher wages, as in the case of Nigeria, are higher cost of production. These may hinder increased productivity thereby resulting in inflation. Or the higher production cost is passed onto consumer in form of higher prices on commodities.
10. Insecurity causes inflation:
During crisis or insecurity effort are diverted from production of goods to the production equipment to protect the people. Labor that could be use to produce goods and food is deployed in the security department. Hence demand cannot equate supply. Inflation therefore set in.
Other causes of inflation in Nigeria
The beginning of inflation in Nigeria can be said to be a direct result of the policies of the countries government to stimulate a fast rate of economic growth and development since 1951 when ministerial government was introduced. Prior to (SAP) THE STRUTURAL ADJUSTMENT PROGRAM, it was found empirically that two most important external factors contributory to Nigerians inflation are rising world export price and falling world output.
The most important domestic or internal cause/factor was increased government expenditure, rising domestic credit creation and supply bottlenecks such as shortage of raw materials and spare parts. The structural adjustment program has worsened the inflation situation.
SAP- INDUCED CAUSES OF INFLATION IN NIGERIA
As ojameruahe(1988) noted, inflation is usually the result of the interplay of many factors. This book abstract from such theoretical debates and identifies a “menu” of the sap –induced causal factors of the current Nigerian inflation.
Specifically, the measures under the SAP that have triggered off chronic inflation include:
1. External debt management strategies
2. Second- tier (foreign exchange market) operations
3. Removal of subsidy on petroleum product and fertilizer
4. Privatization and commercialization
5. Trade liberalization and interest rates deregulation
How to control inflation in Nigeria’s economy
To control and reduce the level of inflation in Nigeria, the government must be willing to adopt the following majors below to achieve this objective:
1. Price control measures;
This involves the setting up of a price control board by the government which fixes maximum prices charge for certain goods and commodities experiencing inflation especially the price of fuel which is also known as petrol as Nigeria is heavily dependent on this product. Experience has shown that this system, bedeviled with a myriad of problem, does not work. The Nigerian case is a typical example. What usually result are hoarding, profiteering, and black marketing thus negating the initial aim.
2. Wage control or wage freeze;
Most government place freeze on wages increase as a measure to combat inflation. But this policy does not work or is ineffective since workers have evolved methods of making the government or employers of labor dance to their tunes. These ways include go slow, work to rule, industrial actions, etc. these are most often used in democratic nations and societies.
3. Monetary policy;
This involves the use of traditional monetary instrument to reduce the quantity of money in circulation. These include; increase in bank or discount of open market operation, contractionary, monetary policy in this case, sectorial allocations or special directives, etc. however, the experience in the developing world has shown that these traditional instruments of monetary policy have a lot of deficiencies hence their ineffective.
4. Fiscal policy;
A combination of increase in personal income tax and reduction in government expenditure may prove effective especially when inflation is demand-pull in nature. These reduce the purchasing power of consumers thus reducing prices of commodities.
5. Total ban on the importation of certain goods;
Especially when here is “user charges and cost –recovery principles” with respect to privatization, a total of 95.3 million shares with a market capitalization in excess of 142 million have been offered for sale by the technical committee on privatization and commercialization.
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