What is Inflation?Inflation is the rate at which the general level of prices for goods and services is rises continuously. Inflation is frequently described as a state where “too much money is chasing too few goods”. When there is inflation, the currency loses purchasing power.
The purchasing power of a given amount of naira will be smaller over time when there is inflation in the economy. For instance, 2-3 years ago, a bag of rice cost N6,500 but now a bag of rice costs N17,500.Inflation may be due to the increase in the supply of money or decrease in productivity or both. Types and Causes of InflationDuring a period of full employment, inflation may spring up from many sources:1. Demand Inflation: inflation may emanate from excessive demand over supply. It is found where there is too much money chasing too few goods.
For instance, during the Nigerian civil war, stringent restrictions were placed on imports; goods were scarce. Source: Intelligent Economist 2. Cost-Push Wage-price Spiral Inflation: the emphasis here is on cost. Something causes the cost of production to rise. This could be a rise in the cost of living of workers which eventually lead them to demand for more wages.
Hence, the increase in the cost of production. Source: Intelligent Economist 3. Potential and Repressed Inflation: Potential inflation arises where there is full employment but the government keeps the situation in check and prevents inflation by applying fiscal and monetary policies. These will ensure that additional funds are not supplied to the economy.
Repressed Inflation arises on the other hand if additional funds are supplied under the above condition, the inflationary phenomenon are not allowed to show on the surface. This is because the economy is planned or controlled.4. Open Inflation: This may again be caused by over expansion of currency.
This could be serious especially when the increase in the quantity of money is not followed by a proportional increase of goods and services produced. Who is responsible for keeping Inflation steady?According to a publication by William Poole and David C. Wheelock, “keeping Inflation in Check Must Be No. 1 Goal of Monetary Policymakers.
” One of the functions of central banks all over the world is to monitor inflation. Central banks the worlds over are obsessed about inflation and, therefore, devote a significant amount of resources at their disposal to fight inflation. Hence, the primaryobjective of monetary policy is to ensure price stability. The focus on price stability derives from the overwhelming empirical evidence that it is only in the midst of price stability that sustainable growth can be achieved.
Nigeria’s central bank left its key interest rate at a record high to fight inflation and buttress its currency even as the economy recovers from the biggest slump in 25 years.The Monetary Policy Committee held the key policy rate at 14 percent, Central Bank of Nigeria Governor, Godwin Emefiele told reporters on a Tuesday in September 2017, in the capital, Abuja. Seventeen of 19 economists in a Bloomberg survey said policy makers would keep the rate where it’s been since July 2016, with the others expecting reductions.
It was the first policy meeting since the statistics agency announced the economy of Africa’s biggest oil producer expanded 0.6 percent in the three months through June, following five consecutive quarterly contractions. While improved dollar supply has reduced import costs and helped ease inflation, price growth remains almost double the government’s target, partly because of higher food costs — a trend that might continue after floods hit the food-producing Benue state. (Doya & Bala-Gbogbo, 2017) “Although it would make it more attractive for Nigerians to acquire assets at cheaper prices, thus increasing their net wealth and therefore increasing spending as confidence rises, the committee felt constrained that loosening would exacerbate inflationary pressure and worsen the exchange rate and inflationary condition,” Godwin Emefiele said.
Nigerian authorities have eased currency-trading controls this year. They had been tightened after crude prices crashed in 2014, which exacerbated an economic crisis, hammered importers and deterred investment.The decision “shows that the central bank is focused and not yielding to pressure to cut,” Kunle Ezun, an analyst at Ecobank Nigeria Plc in Lagos, said by phone. “There has to be gradual care and nursing of the economy before considering a tweak.” In August 2017, monetary policy officials unified some of their rates when they let currency dealers quote naira levels used in actual trades. The move immediately weakened the naira’s interbank price 14 percent to about 365 per dollar, near the black-market rate, with the currency at 355.99 in the commercial capital, Lagos.Improved dollar supply also helped ease inflation by reducing import costs, but at 16 percent in August, price growth remains outside the central bank’s target of 6 percent to 9 percent.
In conclusion, according to the NBS, Nigeria’s inflation rate has decreased for the tenth consecutive time. For the tenth consecutive time, Nigeria’s Consumer Price Index, CPI, which measures inflation, decreased to 15.90 per cent making it 0.
01 per cent lower than the 15.91 per cent recorded in October 2017. This was disclosed in a National Bureau of Statistics, NBS, report published on the bureau’s website on Sunday.However, despite the month-on-month decrease, the inflation rate increased year on year by 15.90 per cent in November 2017.According to the report, “increases were recorded in all Classification of Individual Consumption by Purpose, COICOP, divisions that yield the Headline Index.”On a month-on-month basis, the Headline index increased by 0.78 per cent in November 2017, 0.02 per cent points higher from the rate of 0.76 per cent recorded in October.”This represents the first rise in month-on-month inflation following five consecutive months on month contraction in headline inflation since May 2017.”The percentage change in the average composite CPI for the twelve month period ending in November 2017 over the average of the CPI for the previous twelve month period was 16.76 per cent, showing 0.21 per cent point lower from 16.97 per cent recorded in October 2017.(Premium Times newspaper, 2018)