THE EFFECT OF INFLATION ON ECONOMIC EXPANSION IN NIGERIA

THE EFFECT OF INFLATION ON ECONOMIC EXPANSION IN NIGERIA

BACKGROUND OF THE STUDY

Families all throughout the world, including those in Nigeria, are increasingly talking about inflation as their primary subject of conversation. The influence of the press as it becomes increasingly pervasive in everyday life across the nation. It has become somewhat of a cliché to assert that one of the most significant economic challenges of our day is the steep and persistent rise in prices; yet, this is one of the difficulties that we face. In point of fact, the situation is so severe that if it is not brought under control, inflation would cause irreparable damage to the fundamental foundations of our communities (Aminu, & Anono 2021).

Inflation is a term that is typically used to describe a scenario in which there has been a significant and ongoing increase in the overall level of prices across an economy. It is both a social ailment and an all-pervasive economic issue at the same time. In addition to causing pricing distortions, it destroys savings, discourages investment, encourages the flight of capital, stifles growth, and creates a nightmare for economic planning while also causing political turmoil (Guy, Debelle et al, 1998). As a consequence of this, governments view inflation as a disease and make efforts to eradicate it by implementing policies that are both stable and consistent in terms of their fiscal and monetary implications (Anochiwa, & Maduka, 2021).

In today's day and age, discussions on the various forms inflation might take are commonplace. Indeed, "price rise" and "inflation" are frequently used as if they were synonyms for one another. But there is also another, more precise definition of inflation, which is an increase in the general price level that is produced by an imbalance between the supply of money and trade demands. This definition describes inflation as "inflationary pressures." There is just one source of this "inflation," which is the central bank, and there is only one cure, which is a money growth rate that is less expansive. But as a condition of the price level, which may have originated from a variety of things (including a depreciating dollar, rising labor costs, bad weather, or any one of a number of other factors other than "too much money"), the solution to — and the prudence of — eliminating inflation is much less clear (Bakare, Kareem & Oyelekan 2021).

Both good and negative effects can be associated with inflation's effect on an economy's overall performance. Because inflation has an influence on capital accumulation, it can, on the plus side, contribute to stronger and more sustainable economic growth. Additionally, inflation results in severe consequences on economic growth as a direct result of the negative influence it has on productivity within an economy (Bakare, Kareem & Oyelekan 2021).

According to the findings of some academics, inflation might create uncertainty regarding the potential profitability of investment projects in the future. Therefore, this resulted in investment plans that were more cautious than would have been the case under any other circumstances, which eventually led to lower levels of investment and economic growth. Khan (2002) agrees that inflation may also limit a country's ability to compete internationally. This occurs when a nation's exports become comparably more costly, which has a negative effect on the country's balance of payments. In addition, budget deficits slow both the acquisition of new capital and the rise of the economy's productivity. On the other hand, certain schools of thought maintain that there is a causal link between rising prices and accelerating economic expansion (Aminu, & Anono 2021).

Kuznet (1973) defined economic growth as a long-term rise in the capacity to supply increasingly diverse economic goals to a population. This growing capacity is based on advanced technology, industry, and the institutional and ideological adjustments, which are demands. One of the macroeconomic goals in a society is economic growth. As a result, it suggests that there has been a growth in the value of the commodities and services that an economy has generated. It is easy to calculate economic growth as the percentage rate of increase in real gross domestic product, and it is typically calculated in real terms, which means that it is adjusted for inflation. This is done so that the effect of inflation on the price of goods and services produced is taken into account when calculating economic growth (Aminu, & Anono 2021).

According to the hypothesis put out by Barro and Grilli (1994), conventional economists think that high rates of inflation are brought about by high rates of growth in the money supply. They are of the opinion that changes in inflation can sometimes be attributed to fluctuations in real demand for goods and services or in available supplies (i.e. changes in scarcity), and that it can also sometimes be attributed to changes in the supply and demand for money. In other words, they believe that changes in inflation can be attributed to a combination of these factors (Anochiwa, & Maduka, 2021).

Inflation is one of the most significant challenges confronting the economy in Nigeria, despite the fact that the country had very low rates of inflation in the years immediately after its independence. Nevertheless, during that decade, the nation had an inflation rate that was in double digits. The civil war was the primary cause of this situation. Years 1984, 1988, 1992, and 1995 were also characterized by high inflation rates.

In order to combat the issue of inflation, several large-scale economic measures, most notably those concerning fiscal, monetary, and exchange rate, have on occasion been used. Unfortunately, these efforts have had very little or no success, and as a result, other macroeconomic goals, such as economic development, an increase in employment, a favorable balance of payments, and fair income distribution, have been more difficult to attain (Bakare, Kareem & Oyelekan 2021).

In light of this, the purpose of this study is to determine the impact of inflation and the rate of inflation that may be tolerated in order to achieve economic growth in Nigeria. The ultimate goal of this research is to produce economic growth that is more balanced.

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