THE EFFECT OF INFLATION ON THE ECONOMY.

ABSTRACT

    Inflow generous is a macro topic in coming, which is inevitable of lexicon. It persistent increases in the general price cover of community. Also, it could be described as a situation pursuing few gooses. Furthermore, it could be described as a site. Or where there is a full in the purchasing power on naira currency. Under this topic we will pay more attention to the effects and causes of inflation in Nigeria.

       The group information for the project, such as obtaining from the early eighties till now.

       At the end of this work, the group will seem it fit have procreated a well and appreciable project.

TABLE OF CONTENTS

CHAPTER ONE

1.1              Statement of the problem

1.2              Rational of study

1.3              Significance of the study

1.4              Background of the study

1.5              Definition of terms    

CHAPTER TWO:

2.1              Theoretical review

2.2              Empirical review

CHAPTER THREE:

3.1              Hypothesis of the study

3.2              Research tools and procedure

3.3              Sources of study

3.4              Limitation of the study

CHAPTER FOUR:

4.1              Data presentation

4.2              Analysis of data

4.3              Discussion of the result.

CHAPTER FIVE:

5.1              Summary of the study

5.2              Conclusions

5.3              Recommendation on the study

5.4              Recommendation for further studies

     Bibliography and references.

CHAPTER ONE

INTRODUCTION

Statement of the problem.

The inflationary period is a time of high price of goods and service. Onah (2005) this works the quantity and type of products (good and services) purchasable by individuals and corporate body at any point in time. The problem passed by this, is that individuals and corporate bodies in the society are unable to purchase the quantity of desired products during inflation.

     During inflation, income earners especially those with fixed income and very poor ones in the society find if difficult to match with the increasing prices of goods and services. This continues as long as price rises and there is fall in the purchasing power. Standard of living must

be emphasized.

      More values of money is being required by individuals for the purpose of desired products during an inflation period as opposed to normal economic situations. This brings about decline in the purchasing power.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                This results in a problem as the ability of individuals to purchase “products” in the light of continued rising prices become reduced.

      Also of importance is the issues of inflation giving rising to the different society wish income as the distinction factor. There is a large gap between income of foxed income earners and profit earner. This is because the income profit earners rise with the rising prices of products as opposed to those of fixed income earners.

        Again worthwhile to note is the fact that during inflatary period, savings decline. This could analyzed the people tend to spent more of their income due to higher prices of products.

      This result into a problem because a declaimed in savings gives birth to low investment which detents economic growth

     The important questions to ask, there are how will the individuals be able to purchase the desired mix of products? How will the fixed income earners be able to maintain their standard of living at period of continuous rising in prices? How dose a poor man make both and meet under a decline purchasing power? How will the government bridge the gap between the fixed income earners and profit earners?

1.2            RATIONAL OF THE STUDY

The rational of the study is important to people of Nigeria to know the effects of inflation in an economy.

  As we have know what inflation is all about and as well the effect it has in an economy, we need to fight it very seriously to prevent it coming to our economy because it may come in, the economy is to suffer much on it. Inflation has a very bad affects even to the fixed salary earners mostly where a staff or civil servant has a fixed amount of money as salary can never meet up all he needs because of the inflation. Since we said or know that inflation period in an economy is when there is two much money in circulation chasing few goods.

Once this suffering exists in our economy, our investors cannot be able to invest again and since they cannot invest, it means that the economy is going backwards and individual’s standard of living is going down.

In an economy where inflation exist, there is always decrease in production and once there is a decrease in production it means that those that engage in production process can not produce what will lead them to invest or save. Once they cannot save their resource means that banking industries is affected.

     I suggest that our government have to increase taxation, modernized techn0logy, increase bank rate, use effective of control and so on to control or prevent the existence of inflation in our economy.

SIGNIFICANCE OF THE STUDY

  The significance of the study lies on the fact that an analysis of the meaning, causes and type and as well the effects of inflation on individuals and corporations, will give a more realistic out look on how the population as a whole is being affected. It is believed that a study of this nature will expose the suffering of Individuals Corporation through its findings to policy makers, for formulating of most effective plans towards coping with inflation, and better living of life form every citizen.

       Be of immense important for students in financial studies as a basis for further research work.

     Expose the ordinary men to why they face a low standard of living.   Assist the planning of unit of government through the provision of more efficient feedback information on the effectiveness of their anti-inflationary policies.  It will help individuals and corporations in the planning of their marketing mix for their products.   It will help the IMF on how to advice the Nigerians to overcome the effects of inflation.

1.3            BACKGROUND OF THE STUDY

            Inflation is neither new in the economy system of Nigeria nor the world at large. There have been in existence, variations in magnitude or rats.

         The rate of inflation in Nigeria was about 10% between 1969 and 1970. In 1970, prices rose by about 14%( immediately after the was of 1970) then fell to 3% in 1972, rose by about 16.1% in 1974 and reached a rate of about 34% increase in 1975. Inflation seemed to be the greatest task to governments policy makers in the 1970’s history.

      The inflationary trend in Nigeria form 1973 to 1985 can be graphically represented this;

40

30

         20

         10

          0

                       73   74   75 76    77    78    79     80     81     82     83    84 85           

     Using the above official inflation rate figures for 40 percent 1973 to 1985, inflation stood at 40 percent in 1989, while the lowest figure for period was 6 percent in 1973.  In 1974, inflation rose to about 13 percent before the Udoji salary award of the same year only to leap to 34 percent in 1975 mainly as a result of the award. It went down gradually until it hit 10 percent in 1080. It went crazy and leapt to about 22% the following years and come down again to 7% in 1982. This was reversed in 1983 when it shot up to 24% and hit it’s all time high of 39% in 1984, the inflations trend persisted from 1985 and reached it’s excruciating level when the structural adjustment programme was introduced which gave birth to second their foreign exchange market (sffm) on September 29, 1986, since the introduction of sftm, the value of naira has been reduced to next to nothing this exacerbated inflation in Nigeria to unimaginable level.

            However, the official inflation figures are known to substantially understate the actual inflation rate. Nevertheless they act as a rough guide of the inflationary activities in the country.

      Evidence has shown that inflation persist both the developed countries and developing countries, with difference in magnitude or rates, however, making comprising with present situation.

        The rates in developing countries are more than those in the developed countries. The above-mentioned rates were attained during the seventeen century and the early part of the eighteenth century (1799-1807), and the early mid-parts of the nineteenth century (1969-1975).

(1)     Inflation simply means a continuous up ward movement in the general price level, inflation does not mean that each and every price is rising, nor that all prices are rising at the same rate.

(2)       It is a process by which paper money loosed values, this depreciation is reelected quantitatively in a rise in prices. The fast prices rises in a given country, the faster it’s currency losses it’s purchasing power on the domestic market and through certain connecting link on foreign market too.

(3)        Inflation may be defined as a continuous rise in the price of goods of services a+ result of large volume of money in circulation used in the exchange of the few available goods and services.   Also, the high price of imported goods arising from increase in foreign price and instability of international exchange rate. Sub-charge from port congestion, storage facilities, marketing arrangements plus the distribution network, the impact of second tier foreign exchange market and removal of oil subsidy. There has been an increase in the price of oil since the removal  and this level led to price increment of most items, and increase in transportation fare is a living example at hared.  At this junction, it  worthy to note that all these issues abcrused accelerated increase in the  aggregate demand not being match by appropriate expansion in domestic output and the import of goods and services.  In conclusion, had inflation affected everyone in exactly the same way and degree, it would have no importance whatsoever, it’s social sign-finance arises from the fact that it always dose effect the people differently. It’s effect on personality, income and family background corporation, source of income , etc, also their locations, whether in the local places or ion the city are of relevance of the study.

1.4            DEFINITION OF TERMS

i.                    OPEN AND SUPPRESSED INFLATION

      Open inflation is the result of the uninterrupted operation of the market mechanism. There are no controls on the distribution of commodities by the government imposes fiscal and monetary controls to check open inflation.

ii.               STAGINFLATION

This is a situation whereby recession is accompanied by a high rate of inflation also called inflationary recessing. This type of inflation is caused by the excessive demand in commodity market and decrease in the demand for labor thereby causing prices to rise and creating unemployment in the economy.

ii.                  EDMAND –PULLL INFLATION

This is a situation offer described as ‘too much money chasing few goods”, this arises as a result of increase in demand with a corresponding decrease/increase in the supply of goods and as a result the prices of these goods will rise.

iii.                ARTIFICIALLY CREATED INFLATION

This is a situation whereby traders sometimes create artificial scarcity by heading the commodities with the main aim of increasing the prices of their commodities.

iv.                COST-PUSH INFLATION

This is a situation where money wages rises more rapidly than the productivity of labour, cost-push inflation is caused by continues rise in the prices of factors of production, land, Labour, capital and entrepreneurship.

v.                  MAKE-UP INFLATION

This take of inflation is closely related to the price-push problem, modern labour organization set prices and wages on the basis mark-up over cost and relative income, firm possessing monopoly power have control over the prices and so level administered price, when strong trade unions are successfully in raising the wages of worker, it contribute to inflation. Having considered the types and cause of inflations it then lead to consideration of the effects of inflation in Nigeria Economy.