The economic democracy system 1999, makes the inflation rate much higher than the further undermine government efforts to layoff some workers which makes the nigeria macroeconomic stability. The results revealed that money supply and exchange rate were stationary at the level while oil revenue and interest rate were. Former is called demandpull inflation dpi, and the latter is called costpush inflation cpi. Inflation and the gdp as a perfect proxy for economic growth to examine the relationship. Inflation can only be reduced to the barest minimum by increasing output level gdp. Get free research paper on impact of inflation on property value in nigeriaour project topics and materials are suitable for students in nigeria with case studies.
Price inflation causes a problem in the economy if income growth doesnt keep up with it. Try to explain the various types of monetary policy that can be used to combat inflation and other macroeconomic problems. A case study of edo state abstract the study examines the impact of inflation on economic growth of nigeria. Using the ols regression technique, the results showed that real output, net exports, current money supply, domestic food prices and exchange rates were the major determinants of inflation in nigeria. An empirical analysis of the determinants of inflation in nigeria. In analyzing the data the simple percentage method was applied the empirical results demonstrated that. Causes, costs, and current status congressional research service 2 a monetary phenomenon resulting from and accompanied by a rise in the quantity of money relative to output.
Top 7 causes of inflation in nigeria research cyber. It is noteworthy that, as the table indicates, the widening of the differential between domestic and foreign inflation has generally. In the years preceding 1975 the rates were below 30 percent. This unrest has made food production to reduce drastically particularly in the north east where most cases of killings and destruction of properties have been recorded. In this study, we seek to identify the causes of inflation between two groups of countries, i. Structural factors in nigeria as principal causes of inflation were identified. Since mid 1960s, inflation has become so serious and contentions a problem so serious and contentious a problem in nigeria. The inflationary pressure was further aggravated by high demand for imports of both intermediate inputs and consumer goods due to over valuation of the naira which made imports relatively cheaper than locally manufactured goods. In response to this, we shall focus mainly on trends in inflation, budget deficit.
The few studies on inflation threshold in nigeria aisien and iyoha, 20. Existence of excess aggregate demand can cause inflation demand pull. This is commonly described as too much money chasing too few goods. The intention is to provide answers to the following questions. The causes of persistent inflation in nigeria pdf logo. Enlighten students, readers and researchers on the significance of central bank of nigeria and its role in the process of nigeria economic development. Inflation and reflect a dozen diverse views on one of the nations central economic problems. Asogu 1991 investigated the nature and causes of inflation in nigeria, using annual time series data from the period 1960 and 1989. In the same vein, the study of fullerton and ikhide 1993 examined inflation dynamics in nigeria. Determinants of behavior of inflation rate in nigeria business. Consistently, their results found that money aggregate stands to be a fundamental factor that spurs inflation growth in nigeria. Demandpull inflation is caused by an increase in the conditions of demand. Masha 2000 indicated that the high inflation episodes in the country since the 1970s were largely driven by the growth of money supply and some factors reflecting the structural characteristics of the economy.
Effect of inflation on the growth and development of the nigerian. Jan 28, 2021 nigeria s inflation rate increased by 15. Inflation rate trend in the nigerian economy 1973 20. He reported that money supply, real gross domestic product, previous level of inflation and exchange rate cause inflation in nigeria. The results show that inflation has a negative effect on exchange rate, consumer price index cpi and economic growth in nigeria. The importance, how to, effect causes relationship, comparison, history, role, solutions are discussed. Causes, effect and solution to inflation in nigeria education. Analysis of the main determinants of inflation in nigeria iistes. The study also revealed that the gdp growth rate is counter inflationary as against inflationary factors. Doc the impact of monetary policy on inflation in nigeria. It is noteworthy that, as the table indicates, the widening of the differential between domestic and foreign inflation.
An increase in nominal money supply shifts aggregate demand curve rightward. At the macroeconomic level, an upward inflationary pressure may make the export of goods and services in an economy to dwindle because the prices of tradables may become less competitive in the international. The causes of persistent inflation in nigeria econstor. The two causes of inflation are costpush and demandpull, which includes monetary expansion. In an economy, when the demand for a commodity exceeds its supply, then the. Accumulation of debt servicing especially foreign debts. Pdf the causes of persistent inflation in nigeria researchgate. Gdp rises inflation also rises, suggesting that there has been no effectiveness in the monetary policies aimed at tackling or controlling inflation rate in nigeria. Jan 29, 2018 in nigeria, the rate of inflation was about 10% between 1969 and 1970. When prices rise by more than 50% per month, this excessive inflation is called hyperinflation. We recommended that for sustainable economic growth to be achieved in nigeria, the level of inflation should be stabilized by the monetary authorities.
Limitation of studythe limitation of our study centers around time, availability of material and money. Inflation structural fundamental budget deficit external reserves gdp. These factors are presented for period aver ages in table 3. The relationship between inflation and unemployment in. The stationary properties of the model were also explored.
Causes, effects and solution of inflation in nigeria. High inflation, a general rise in price of goods and services leading to low purchasing power. It was empirically continued that although fiscal deficit causes inflation, there was no feedback between inflation and fiscal deficit deflated by the gdp. This study is on inflation rate and economic growth in nigeria between the period 1980. Inflation is a sustained rise in the general price level. In nigeria, a rapid increase in net import has filled the widening gap.
Aug 28, 2020 there are two main causes of inflation. The results showed that there is a significant effect of economic. The inflation in nigeria causes, consequences and control. Ineffective leadership and corruption, over reliance on oil, inflation, unemployment, government policy, monetary policies, inadequate. Nigeria has witnessed high and volatile inflation rates since 1970s. Inflation become significant in nigeria after the nigeria civil war thought it might have been in existence long before then. The main determinants of inflation in nigeria imf elibrary. Secondary data that ranged between 19702008 were sourced from the cbn statistical bulletin.
Both are responsible for a general rise in prices in an economy. Nigeria has experienced high volatility in inflation rates since early 1970s there has been some period of high inflation in excess of 30 percent, this is because money growth has often in excess of real economic growth. But to the central bank, there was no economic theory to suggest a currency redenomination could cause inflation. There is very little information on what causes it, but we have managed to figure out five main causes of inflation in nigeria. Policy makers in nigeria and ghana should always try to identify to cause of inflation at each point in time before applying the right policy otherwise they will end up applying monetary policy in attempt to solve structural issues or macroeconomic factors responsible for inflation which will largely have no effect on the economy.
The time limit with which this study has to be completed is little more than three months. Unemployment in nigeria is a major problem both economically and socially. Recent studies on inflation in nigeria broadly agree on the key factors influencing the rate of inflation. According to the latest consumer price index report, released by the national bureau of statistics nbs, the food inflation index rose sharply by 19. Inflation rates across emerging economies enjoying higher growth rate like nigeria are as follows.
Our emphasis here is on diagnosis of the causes of inflation and a description of the effects of inflation, not on specific policy recommendations to end inflation. Understanding the sources of fluctuations in output and inflation is an im. Causes, effects and solution of inflation in nigeria myschool. Nigeria has been going through a lot of economic problems in the recent years. In this case, the impediments to development may be referred to as cost. The ardl model is applied to reveal the short run impact and long run impact of each factor on inflation. The causes of persistent inflation in nigeria central bank of nigeria.
Determinants of inflation in nigeria international journal of. Causes of inflation demandpull inflation arises when aggregate demand in an economy outpaces aggregate supply it involves inflation rising as real gross domestic product rises and unemployment falls. An attempt is made in this paper to analyse the underlying sources of inflation in sudan, a key factor in establishing macroeconomic stability. Structural disequilibrium and inflation in nigeria. The study examines money supply and inflation rate in nigeria.
It hurts people who are retired and living on a fixed income. Immediately after the nigeria civil war, prices took an upward turn from their previous level due to the shortage of goods and services, caused. Deflation, the opposite of inflation, is the term for an overall decrease in prices and wages across a sector or economy. It is suffice to say that causes of inflation is one of the most. Inflation seemed to be the greatest task to governments policy makers in the 1970s history. We hereby try to analyze the causes effect of nigeria inflation in terms of some qualifiable as. Unemployment in nigeria has resulted in more and more people who do not have purchasing power. Costpush inflation arises from upward pressure of production costs, while structural inflation arises from constraints such as inefficient. A comparative analysis of inflation dynamics models in nigeria. Following the quantity theory of money by fisher 1997 and the model by grauwe 2005 and tang 2008, they specified a model expressing inflation as a nigeria. The major reason was that this introduction would generate inflation and also because the policy ran counter to the cashless policy of the central bank of nigeria. Empirical results indicated that inflation in nigeria proxied by cpi exhibited.
The rate of inflation in nigeria was about 10% between 1969 and 1970. The existence of inflation in nigeria came up in the middle of 1970s when there was an oil boom, the inflation rate manifest on the suddenly since the military government did not assist the situation with the inflation policy through. Abdullahi and adamu ibrahim this study examined the dynamics of inflationary process in nigeria over the period 1981 2015, using the bounds testing approach to cointegration. Other micro economic variable tested along with inflation in this study are agriculture, manufacturing, and trade. The major cause of economic recession in any economy lesson from great depression, 1981, 1991, 2004, 20082009 global economic recession may include. The impact of foreign investments on domestic inflation in nigeria. Ajisafes study was preoccupied with the monetary factors that could cause inflation, at the expense of fiscal factors. The relationship between inflation and unemployment in nigeria. Analysis of inflation dynamics in nigeria 1981 2015. Nov 25, 2020 the major reason was that this introduction would generate inflation and also because the policy ran counter to the cashless policy of the central bank of nigeria. Again, demand also influences it because when income. Nigeria has been struggling against insurgency since the beginning of the democratic era in 1999. In analyzing the data the simple percentage method was applied the empirical results demonstrated that there is a.
Inflation causes many distortions in the real estate market. Inflation in nigeria, causes, consequences and control afribary. Effect of inflation on the growth and development of the. This study investigated the main determinants of inflation in nigeria for the period. Whatever the initial cause, inflation will not persist unless accomplished by sustained increase in money supply. Existence of excess aggregate demand can cause inflation demand pull inflation. First, in the aftermath of a recession, when many resources are underutilized, an increase in the money supply can cause a sustained increase in. Second of all, despite being quite a popular topic among the economists, inflation in nigeria is severely understudied. But what effect does inflation have on property values. Oyediran 2006 observed that the rate of inflation can cause serious problems in the economic accruals or rate of return to constructors for works undertaken, thus loss of profit. The obasanjo debt reduction policies from 19992007 did not help the reduction of increase in inflation in nigeria because. The result of the test showed that for the periods, 19702005, there was no cointegrating relationship between inflation and economic growth for nigeria data. To highlight the relevance of monetary policy in combating inflation.
This paper discusses the challenges of nigeria s economy problems, causes and the way forward. Analysis of inflation and its determinants in nigeria munich. Inflation and economic growth in nigeria science web publishing. In general, money supply is consensually believed to be the major cause of inflation in developed countries while structural factor like currency depreciation, institutional framework, balance of payment crisis, political crisis are often regarded as the determinant of inflation in developing countries like nigeria and ghana. Analysis of inflation dynamics in nigeria 1981 2015 sani bawa1, ismaila s. Previous research has shown that, in the longrun, the main determinants of inflation in kenya emanate from the money market and external sector. Demandpull conditions occur when demand from consumers pulls prices up. 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. In the traditional procurement method, firm price contracts, where the contractor is paid in arrears.
Since inflation arises when aggregate demand exceed aggregate supply, we shall focus our attention at examining the control monetary policy has on thus primary variables. Different authors have aired their views as to the causes of inflation innigerian economy. This paper investigates the impact of inflation on economic growth and development in nigeria between 1970. Further evidence shows that inflation in ghana is due to a combined effect of internal and external factors, with real output growth having the greatest impact while in nigeria, exchange rate. Figure 1 illustrates inflationary trend in the country during the study period. Though inflation rate is not new in the nigerian economic history, the recent rates of inflation have been a cause of great concern to many. Variables such as prices, wages, and interest changes which influence profit effect induced investment. In 1970, prices rose by about 14% immediately after the was of 1970 then fell to 3% in 1972, rose by about 16. Former leads to a rightward shift of the aggregate demand curve while the latter causes aggregate supply curve to shift leftward. The structural model of inflation revealed that, it takes about two years for the fiscal deficit to impact on inflation in nigeria. Border closure, insecurity and other causes of high food. Ajisafe 1996 11 used an errorcorrection model ecm to examine the cause of inflation in nigeria.
Monetary policy and inflation in nigeria economy project topics. Basically, two causes of inflation have been identified, namely, demandup and costs push inflation. Ii proximate causes of inflation in nigeria some preliminary observations from trends and relationships a proper understanding of the determinants of inflation in nigeria requires adequate discussion of the movements of the relevant variables over time. Monetarists argument that only money matters is based on the assumption that at or near full employment, excessive money supply will increase aggregate demand and will thus cause inflation. The study therefore concluded that inflation in nigeria, during the studied period, was driven by the passthrough of import prices to domestic prices via markup pricing by firms. Does the central bank lost it monetary independence or does it do as the politicians want it to do. In analyzing the data the simple percentage method was applied the.
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