Inflation In Nigeria, Causes, Consequences And Control




  1. Inflation can be said to be “a situation in which there is a persistent upward movement in the general price level or in which their would be such a persistent upward movement but for the presence of direct control over prices.

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  1. It can also be a caused scrolling of the stream of money at a rate faster than that of the stream of things i.e. goods and services, one which this stream of money is spent and that money creation in inflationary period, when the additional purchasing power has no counter past in goods and services people want to buy”.


  1. Furthermore, inflation can be said to be a continuing rise in prices as measured, by an index such as the consume price index (CPI) or by the implicit price deflation for gross national product.

This three definition stress the point of general rise in the price level being unaccompanied by a corresponding rise in the volume of goods and services.  We can find out from the definitions that just an increase in the price of a commodity or a handful of commodities is not symptomatic of an inflationary situation for inflation to exist the rise in price should be “macro” and persisted as well.



The causes of inflation in Nigeria has been attributed by the previous discussant the three fundamental variables: cost-push factors, excess-demand factors and increase in agreed money supply.  The other caused factors are derivations from the major three mentioned above.

These three variable gave birth to the three major types of inflation in Nigeria.  These include, the cost-push/price spiral inflation, the demand-pull inflation and the open inflation.

Also Read: The Effect of Inflation on the Nigerian Economy


Cost put wage/price spiral inflation has not been a new phenomenon in the Nigerian economic system. It was founded during the medieual period but revived in the 1950’s and again inteh1970’s as the principal type of inflation.

The emphasis here is on the rise of cost of production.  This rise in the cost of production might come about either through a wage push or a profit push.  When there is an increase in the cost of living of workers, definitely, they will demand for more wages, and hence a rise in the cost of living of workers, definitely, they will demand for more wage and hence a rise in the cost of production follows.  If this is not followed by increase in not production of goods and serviced (which does not usually happen) produces may be forced into the act or raising the price of their goods and sources in order to mountain their profit margins.  With these conditions, workers again may claim for a rise in wages because the former increase was not enough to off set the subsequent rise in price.

This is wage –price spiral inflation

Supporting the above discussions, Dr. E.O. Akinnifesi said that “it occurs when price increase originated from the supply side of the economy either through profit-push or a wage push resulting form trade union action.

It was this wage price spiral inflation that led the Nigeria government to decree against industrial actions, while Ajbo Commission on wages and salaries and conditions of workers was set up after the civil war in Nigeria.



Demand-pull inflation is a type of inflation caused by rising prices and wages as a result of excessive demand over supply.

Some authors gave the definition of demand-pull inflation as “too much money chasing too few goods and that it is the tendency for prices to rise in the face of the excess demand created by an autonomous stiff in aggregate demand schedule.

Dr. John Orjih I this book “ELEMENT BANKING” defined demand pull inflation as the type of inflation which is obtained when the demand for goods and services exceeds their supply.

This kind of situation occurs when the public have too much money but limited good to purchase.

A good example was during Nigerian civil war when stringent restrictions were place on imports knowing fully well that most productive sectors were not in production.  Thus then more goods scarce and excessive demand existed for those limited quantity of home produced goods.

Usually, when prices tend to respond to the situation of faster rising aggregate demand over supply, producers usually use it as an opportunity to raise the prices of goods and services.  This is what normally happened during Christmas period, when may people traveling from various major cities in Nigeria to their respective villages.  This period, transport owners inflated their bus fares, manufacture saw it as a great opportunity to increase the price of their finished product and invariably affecting serves to skyrocket the prices of commodities (essential commodities).  This price increase also spread to live stock during this period, because peoples demand on the livestock that they will use for the festivities normally goes high.  This deals to an increase in the demand for factors f production wages quickly follow because trade-unions are able to exert strong bargaining power and because producers are encouraged by their excessive profits to offer higher wage in order to attract or retain labour.  Marginal cost therefore rise and this rise is being passed on the ultimate can summon on the form of higher prices.



Open and suppressed inflation is where an increase in the quantity of money is not followed by a proportional increase of goods and services produced.  Also, an over expansion of currency can be an aiding casual factors for this type of inflation.  The over expansion may either be due to the over issue of notes by the military authority or the over granting of credit by the commercial banks or both.

One known writer made it clear that “when the money supply increases, it creates more demand for goods but the supply of goods cant be increased due to full employment of resumed.  This lead to rise of priced. It is a continuous and prolong rise in the money supply that will lead to true inflation. Other types of inflation can be classified as follows:


This type of inflation could be caused by evil activities of sellers of commodities.  Traders sometimes creates artificial scarcity by loading the commodities with the aim of increasing the priced of their commodities.  In the market commodities are not supplied in enough quantities, buyers are therefore forced to pay whatever the price the seller demand for these commodities.  This type of inflation is likely common in Nigeria.  A good example is the hearing of fuel (a petroleum product) by their dealers or suppliers.  This was experienced in recent times when  most of our major retained break down due to ignorance on the part of the government. This is made the petroleum marketed to hoard the available petroleum with the reach and dispose it at the highest losable price.


This is a new term which has been asset economic literature in the 1970’s.  It is paradoxical phenomenon where the economy experience stag-nation as well as inflation.  The word stag-inflation is the combination of “stag” from stagnation plus “inflation” from inflation.

Stagflation is a situation where recession is accompanied by a high rate of inflation.  It is also called inflationary recession.  The principal cause of this phenomenon has been excision demand in commodity thereby causing prices to rise and at the sometime; the demand for labour is deficient thereby causing unemployment in the economy.


The concept of mark – up inflation is closely related tot eh price push problem.  Modern labour organizations posses substantial monopoly power.

They therefore ser prices and wages on the based of mar – up over cost and related income.  Firms possessing monopoly power have control over the prices charged by them.  So they have administered prices.  Similarly, when strong trade unison are successful in raising waged of workers it contributed to inflation.



A ratchet is a to other wheel provided with a catch that prevents the ratchet wheel from moving back wards. The same is the case under ratchet inflation when despite down wards pressure in the economy, prices do not fall.  In an economy having price, wage and cost inflation, aggregate demand falls below fall employment level due to the statically of demand in some sector of the economy.

In such a situation, prices will have an upward ratchet effect and this is known as ratchet inflation.



Inflation once begun, is very expensive to bring under control

when monetary policy is used to show aggregate demand, the main initial responses is to reduce out put and employment and not to  lower prices or wages.  “The increase in prices comes only after real activity has been slowed down under these real activities, slowing inflation always possess a cost, transitory but sometimes heavily.

This simply implies that changing the economic structure, lower the cost using aggregate demand polices to control inflation would be appropriate.

These can be achieved by removing government stumbling blocks to the ability of prices to response quickly to check on aggregate demand.  Enough has been done on the monetary problems especially on inflation control in a mixed economy like ours on the made of a fractional control bewailing system in such an economy.



Inflation is a universal economic concept regardless of

economic system and level of economic development attained.  However, as point out before in the introduction, it is only difference in magnitude that exists.

Ajayi and Ojo described the “Omni-presents nature of inflation in the following way “inflation is work wide phenomenon and it is one of the greatest challenges facing most countries in the 1980’s and the significant feature in it’s ability to defy solution in most countries.

It is noted believed that inflation has its roots in the nature of both men and money and therefore originated from the period men start to use money as a medium of exchange additionally it is believed that inflation had occurred in many countries in highly, including ancient Greece, Roman Empire, Great Britain, Spain and Renaissance Europe etc.



The problem of inflation has remain with his despite

determined efforts by the government to stem its raising tide.  This stator affairs is due partly to the prevailing and advancing inflationary pressured in the economics by our foreign trading parted, the international monetary crisis ever which the have no direct control and partly to the fact that local production has lagged behind demand especially in assistive area like fort and housing.

Different types of inflation as we have already distinguished to give rise to different type of effect in the nations economy.  Thus depending upon whether the inflation is continuous and creeping anticipated or not, repaid and prolonged repressed and semi repressed etc., one would expect differing effecter on major macro – economic variable in the economy.  It is useful to pinpoint some of these effects in a general setting and then see the extent to which they were prevalent in the Nigerian inflationary experience.




Two different types of income redistribution may result from

inflation.  The fairly popular is the debtor – creditor cash will while the seconds which is not easily recognized by the public conus about as a tax on real cash balance.

Thus it the public has not anticipated a particular inflation that comes about one guess what the debtors who borrowed money previously now gains real purchasing power when making payments while his creditor who is receiving the payment losses.  Contracted affected. In this way other than ordinary loans includes the sales of fixed interest bounds, annuities and mortgagees whereby the government and the firms are issuing the bonds gain, the seller of a mortgage (the borrower who financed a house purchase) gained which the buyers of the securities lose.



Inflation affected investments in various ways for at least two

reasons: firstly, company income tax is based on current naira accounting; secondly, depreciation allowances are based fairly rigid rules that apply to the historical rather than say an index value of capital.

Consequently, inflation turns a company’s income tax into a tax on capital because part of what should appear as capital shows up as income.

In the company’s account and is then taxed away normally like an actual profit income.  Thus, even if the firms gross income rises as much as the inflation rate, inflation will still have effect of reducing the real resource that could be devoted to investment for replacement and expansion purpose and also for distribution to shareholders.



The effect of inflation on the agric sector in Nigeria is

particularly not worthy.  It is disturbing to observe that contrary to conventional economic theory, food production has been falling in spite of rising goods priced.  This is partly explained by the distorting effect of inflation on investment in urban and rural areas.  Investment on industries especially the petroleum industries and services had been quite high to the detriment of agriculture. Besides input prices have been rising more steeply than the price of the final project.

It is disturbing to observe that contrary to what economic theory will suggest, food prices are rising which food production, factors of production of investment outside the areas occupied by so million of the population.


Recent walls of inflation all over the world have drawn

attention to the age old controversy regarding the impact of inflation on various aspect of the economy, particularly its impact on economic growth.  However various empirical investigation are carried out on the subject have falls to yield consistent and concussive resulted.  This is mainly because in most investigations, the rated of price charged are merely related to the rate of growth of output.

Inflation may regard a national economic growth for various reasons including he redistributive effects discussed earlier, or because the inflation was not expected, or because of the nature of the inflation itself when warrants particular types of control measures.

Thus a rapid and prolonged inflation some become Chrome and therefore, discourages savings and habits the growth of capital market which are required for an efficient distribution of scarce capital among competing uses so as to promote balance economic growth.



On the effects of inflation in the national economy, the

consensus of opinion is that the nature of the economy, that is the degree of openness and under developed nature of the major economic sectors, in itself a factor on the direction of the impact of inflation and the effectiveness of anti inflation policed.

In the Nigerian context in particulars, we investigate the idea that inflation industries income redistribution whereby the debtors gain real purchasing power when making payment and the creditor loosed, so loose are the ideas relating inflation to investment and economic growth whereby the debtors gain real purchasing power when making payment and the creditor loosed, so also are the dead relating inflation to investment and economic growth whereby inflation is said to dry up the resourced of capital by discouraging saving and capital inflows and encouraging capital flight, and also that it promotes the wrong kinds of investment such as inventory accumulation and investment in building our landed property.



The management has deemed it fit that as at this level, that it

is wise to base all information to be used on secondary data.  The

data used includes already written works by other writers partly form discussions with intellectual in the radio, television and other wide.  Other data’s includes newspapers, journals, textbooks and unpublished work (such as the projects, thesis and dissertation).

The location of these data are majority from libraries among which are:

  1. Institute of Management and Technology libraries, Enugu.
  2. Enugu State University of Science and Technology Library, Enugu.
  3. National Library of Nigeria, Enugu State
  4. Nnamdi Azikiwe University Library Awka
  5. Enugu State Library, Enugu.

The area of study so collected on course this work has been within school confined the state of Enugu and the neighboring state.


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