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What does the rising inflation in Nigeria, mean?

Nigeria's inflation has risen to 16.47%.


Buoyed by galloping food prices, food inflation also rose to 20.57% in January 2021, from 19.56% in December 2020. The Nigerian Government reopened parts of the land borders last year (2020) to ease the food inflation rate, but the move hasn’t had much effect.


Core Inflation rose to 11.85% in January 2021, from 11.37% in December 2020, according to NBS (National Bureau of Statistics).

The Minister of Finance, Budget and National Planning, Zainab Ahmed, had in January 2020 said the government planned to keep inflation at 11.95% by the year ending 2021, following the Central Bank of Nigeria (CBN)’s inability to keep it within a single-digit target range of between 6 to 9% for more than four years.


What does all this information mean to Nigeria?


First, we answer the question, What is inflation?

Inflation refers to the rise in the prices of most goods and services, that require daily or common use, such as food, clothing, housing, recreation, transport, consumer products, etc.

Inflation measures the average price change in a basket of goods and services over time.


The opposite and rare fall in the price index of this basket of items is called ‘deflation’.

Inflation is indicative of the decrease in the purchasing power of a unit of a country’s currency. This is measured in percentage.


What are the effects of this inflation?


1. The purchasing power of the naira decreases as the commodities and services become expensive.


2. This will affect the cost of living in Nigeria (The cost of living means, the level of prices relating to a range of everyday items such as Feeding, Housing, Transportation, Health Care, Social Amenities, etc). With the rising inflation, the cost of living gets more expensive as well, which ultimately leads to slow economic growth.

A certain level of inflation is required in the economy to ensure that expenditure is promoted and hoarding money through savings is demotivated.

Don’t think of inflation in terms of higher prices for just one product or service. Inflation refers to the extended increase in prices across a sector or an industry, like the consumer goods or real estate business—and ultimately a country’s entire economy.


With rising prices, you can now understand why we may be more inclined to try and purchase more quickly before prices rise further. With rising prices, it creates more confusion over which prices are good value.


The effect on economic growth is uncertain. Sometimes inflation is caused by a rapid rate of economic growth. However, if growth is above the long-run trend rate – this may not be sustainable – especially if interest rates rise.

Therefore, higher inflation may be a sign the economic cycle is getting close to the end of the boom period and may be followed by a bust.

Some economists suggest that countries with higher long-term inflation rates tend to have poorer economic performance.


Sources: Financial Express; Economics Help; Forbes

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