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The Effects of Inflation on Cost of Living in Nigeria

The Effects of Inflation on Cost of Living in Nigeria

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Reference ID: PS-3284-TM

DEDICATION

This research work titled "The Effects of Inflation on Cost of Living in Nigeria" is dedicated to God for his enabling grace and to all computer enthusiasts who help to make life a pleasant experience.

ACKNOWLEDGEMENT

I owe my indebtedness to my Supervisor (Name of your Supervisor), the Head of Department (Name of your HOD), the Lecturers in the department of Economics, Book Authors and Profound Scholars of existing/related research material for your moral support that facilitated the successful completion of my (Tertiary Institution level). I am grateful to God Almighty and my parent for their financial support in my career. I really appreciate you all for everything, Thank you very much.

ABSTRACT

Inflation is an inevitable property of any economy in the world. It influences every country, negatively as well as positively, whether it is developed or developing country as well. The standard of living is very germane to every economy. It gives a broad view of how the economy is fairing on a global scale. The study was carried out to examine The Effects of Inflation on Cost of Living in Nigeria. In achieving this aim, the following specific objectives were laid out to determine the Effects of Inflation on the cost of living, examine what constitutes cost of living, and how it negatively affects economic growth and examine the Effects of Inflation and cost of living on economic growth in Nigeria. The research design used in this report is descriptive design, utilizing questionnaire method to obtain information from the respondents for this project. A total of 133 (one hundred and thirty three) respondents were selected for this study to represent the entire population of the study. For null hypotheses were formulated and tested using the one-way ANOVA and the t-test statistical tools at zero point zero five (0.05) level of significance. Primary data were collected from the primary source which questionnaire was used as an instrument of data collection while secondary data were sources from textbooks, journals, newspapers and the internet were employed. The data were presented on a frequency distribution table and analyzed using simple percentage, while hypothesis was tested using chi-square test. The study will be useful to policy makers especially in formulating policies that will reduce inflation growth rate and ensure lower cost of living. The findings and recommendations from this study will be of great benefits to financial institutions in Nigeria. Based on the findings, it is recommended that the government adopts a blend of fiscal and monetary policies to curb the high inflation and elevate the standard of living of Nigerians. The reason for this is based on the fact that the inflation challenge faced by Nigeria cannot be combated by strictly adopting fiscal policies or otherwise.


The Effects of Inflation on Cost of Living in Nigeria

CHAPTER ONE

1.1 Introduction

The standard of living is very germane to every economy. It gives a broad view of how the economy is fairing on a global scale. If an individual cannot get required basic necessities due to low purchasing power, his/her marginal propensity to consume (MPC) rises which makes it more difficult for the individual to live comfortably hence the standard of living dips Several researches have been carried out but the standard of living still remains abysmally low. Inflation, simply put is the continuous fall in the purchasing value of money such that more money chases fewer goods and services which adversely impacts the economy. Inflation rate can influence the standard of living of the population. Once inflation exceeds its required threshold, regulators deploy policy instruments to control and cushion its effects on the population as part of the broad macroeconomic stabilization objectives.

As a prelude to other parts of this study, this chapter will discuss the background upon which this study was initiated, the statement of problems that led to this study, the Aim and Objectives of the study. Others are Significance of the study, Scope of work, Research hypothesis and questions, Limitations of the Study and Definition of technical terms.


1.2 Background of Study

Inflation is an inevitable property of any economy in the world. It influences every country, negatively as well as positively, whether it is developed or developing country as well. Anyanwu (2011) stated that inflation is an important factor leading to social and economic instability and disorder. It is one of the most largely observed and tested economic variables both theoretically and empirically. Its causes, impacts on other economic variables, and cost to the overall economy are well known and understood. Nigeria, being a developing country, could not overcome the continuously year to year climbing up inflation, and also its causes and consequences.

After remaining relatively low for quite a long time, the inflation rate in Nigeria started to accelerate in late 2003. The role of money supply appears significant in influencing food price inflation in Nigeria (Anyanwu, 2011).which disturbed family budget as well as consumer's purchasing power. People struggled in order to maintain their living standard but it slumped down gradually. Many authors have written on the impacts of inflation and cost of living on the Nigerian economy, but the authors have different views, nevertheless, one common thing is that all the authors agree that inflation and cost of living have various impacts on the economy of Nigeria.

The problem created by the rising prices of goods and services leading to higher cost of living has become too difficult for the government to solve. During inflationary period, fixed amounts of money buy less quantity of goods and services. The real value of money is drastically reduced i.e. The purchasing power of consumers are reduced.

To attain sustainable economic growth coupled with price stability continues to be the central objective of macroeconomic policies for most countries in the world today. Among others the emphasis given to price stability in conduct of monetary policy is with a view to promoting sustainable economic growth as well as strengthening the purchasing power of the domestic currency (Umaru and Zubairu, 2012).

The question on whether or not inflation is harmful to economic growth has recently been a subject of intense debate to policy makers and macro economists. Several studies have estimated a negative relationship between inflation and economic growth. Specifically the bone of contention is that whether inflation is necessary for economic growth or it is detrimental to growth. Basically the rate of economic growth depends primarily on the rate of capital formation and the rate of capital formation depends on the rate of savings and investment (Datta and Kumar, 2011).

World economic growth and inflation rates have been fluctuating. Likewise, inflation rates have been dominating to compare with growth rates in virtually many years (Madhukar and Nagarjuna, 2011) and relationship between inflation and the economic growth continued to be one of the most macroeconomic problems. Similarly, Ahmed (2010) maintains that this relationship has been argued in various economic literatures and these arguments shown differences in relation with the condition of world economy order. In accordance with these policies, increases in the total demand caused increases in production and inflation too. However, inflation was not regarded as a problem in that period rather considered as a positive impact on the economic growth which was widely accepted. Amid these views, Phillips first introduced hypothesizes that high inflation positively affects the economic growth by lowering unemployment rates.

Therefore, in Nigeria where the research was carried out, the activities that was conducted is to know the Effects of Inflation on Cost of Living in Nigeria.


1.3 Statement of Problems

Investigation revealed that as far as Nigeria concerns regarding inflationary effects it has been experienced worst consequences reflected by poverty, food crises, price hike etc. Mahmood, Hafeez and Rasheed (2009) concluded that inflation causes poverty. Day to day increase in prices of commodities especially of non-food items like oil and gas snatch money from savings of consumers and uncertainty of prices, both food and non-food items, generate enthusiasm among people toward earn more and more therefore, people prefer to work over recreation underestimating their Health.

Over work and lack of recreation make them vulnerable particularly of middle class people and they almost fall into lower class. Although, over time work bless money but it causes exertion and lethargic body that charge more expense on health instead upper class people hardly encounter any problem to inflation.

Muoghalu, et.al. (2010) found that the inflation brings negative impact while exports and investment brings positive impact on Nigeria economy and suggested that we should encourage a larger scale of export promotion activities to enhance the economic growth. It will create numerous job opportunities which increase the per-capita earnings and standard of living.


1.4 Aim and Objectives of Study

The aim of the study is to examine the Effects of Inflation on Cost of Living in Nigeria. In achieving this aim, the following specific objectives were laid out as follows:

  1. To determine the Effects of Inflation on the cost of living in Nigeria.
  2. To examine the Effects of Inflation and cost of living on economic growth in Nigeria.
  3. To examine what constitutes cost of living, and how it negatively affects economic growth.
  4. To recommend to monetary authorities and the government on how inflation and cost of living can be reduced to an acceptable level.

1.5 Research Questions

The study came up with research questions so as to be able to ascertain the above stated objectives. The specific research questions for the study are stated below as follows:

  • Why have all the policies used been unable to reduce inflation and cost of living to an acceptable level?
  • How can the economy of Nigeria be sustainable into the foreseeable future?
  • What are the economic implications of high inflation and higher cost of living on the economy of Nigeria?

1.6 Research Hypothesis

In order to pursue the objective of this study, the following generalized statements have been designed to guide and aids in obtaining the result for the experiment to be conducted. For this work, the null hypothesis will be represented with H0 while the alternative hypothesis will be represented with hypothesis H1.

Hypothesis One

  • H0: Inflation has no significant impact on cost of living in Nigeria economy.
  • H1: Inflation has significant impact on cost of living in Nigeria economy.

Hypothesis Two

  • H0: Cost of living standard has no significant impact on economic growth in Nigeria.
  • H1: Cost of living standard has significant impact on economic growth in Nigeria.

1.7 Significance of Study

The study will be useful to policy makers especially in formulating policies that will reduce inflation growth rate and ensure lower cost of living.

The study will also be useful to monetary houses like central and commercial banks in Nigeria. Findings and recommendations from this study will be of great benefits to financial institutions in Nigeria, as the recommendations if implemented will go a long way in guaranteeing a sustainable and sound economy.

The study when carried out will also be of great benefit to student researchers who have interest in researching more into inflation and cost of living. It will act like a guide to student researchers who may find the recommendations and findings of the study when completed useful.


1.8 Scope of the Study

The scope of the research is focused on the Effects of Inflation on Cost of Living in Nigeria.


1.9 Limitations of the Study

During the course of this study, many things militated against its completion, some of which are:

  1. Time Constraint: The time allowed for the completion of this research is not adequate based on recent and contemporary happenings with respect to the Effects of Inflation on Cost of Living in Nigeria.
  2. Research material: availability of research material is a major setback to the scope of the study.
  3. Frequent power failure: This made the researcher append more money on fuel to ensure sustainable power.
  4. Financial Constraint: Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).

1.10 Definition of Terms

Inflation: Inflation is a persistent increase in the general price level of goods and services in an economy over a period of time.

Cost Of Living: Is the cost of maintaining a certain standard of living. Changes in the cost of living over time are often operational zed in a cost of living index. Cost of living calculations are also used to compare the cost of maintaining a certain standard of living in different geographic areas. Differences in cost of living between locations can also be measured in terms of purchasing power parity rates.

Economic growth: Refers to the increased every time of an economy's capacity to produce those goods and services needed to improve the well-being of the citizen in increasing number and diversity. It is the study process by which productive capacity of the economy is increased every time to bring about rising level in national income.

Economic development: Economic development is a multidimensional process involving the provision of basic needs, acceleration of economic growth reduction of inequality and unemployment, eradication of poverty as well as changes in attitude institution and structure in the economy.

CHAPTER TWO

2.0 Literature Review

2.1 Introduction

This chapter focuses on the review of related literature. A literature review includes the current knowledge as well as theoretical and methodological contributions to a particular topic. It documents the state of the art with respect to the topic you are writing. It surveys the literature in the topic selected. In this research work the literature review includes the …

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