Inflation Explained in it's Simplest

You must have noticed recently that the prices of almost everything in Nigeria have risen,

even down to the smallest food stuff. The height of it all was when I saw an announcement written in my church’s Sunday bulletin which read “due to the inflation in the cost of production materials the price of the Sunday bulletin has been reviewed upwards, please bear with us”. And I'm so sure you heard the radio and TV announcement made by the Association of Sachet water sellers that the price for one bag will be sold at 100 Naira. This situation where the price every product in the market is rising is what Economics term INFLATION.

What is Inflation?

Inflation in the simplest of definitions is a long lasting increase in the general price of every product in the market. This means that if a single commodity like the price of Garri should rise, it is not inflation or if the price of phones rises, it is not inflation. It becomes inflation when this increase in price affects almost all the commodities in the market (General Price level). What inflation does is that it reduces the value of our money so that 200 Naira you have today will not be the same value as the 200 Naira you had last year or in years past. Our parents tell us stories of when they pay their school fees with as low as 2 Naira 50 Kobo, and when with 500 Naira you can buy a car. But as at present, even the 500 naira that could buy a car is now ‘chicken change to us’. As at last year, 5 Naira could buy a sachet of water but now, what can 5 Naira buy? This is what inflation does.

How it is calculated?

First, a previous year in which the economy of Nigeria was good, and in which the price of things did not rise and fall too much will be chosen and called the base year. In Nigeria, we use the year 1990 as base year. Then the increase and decrease in prices of goods and service in recent years will be cross-checked against this base year.

As at present, Nigeria’s inflation rate has reached its highest, currently 9.6% as at the end of January 2016, mostly due to the high price of fuel and the exchange rate issues. This means that between 1990 and 2016, the general price of goods in the market has increased by about 9.6%. This figure is very bad. The target of every country is to get its inflation rate below 5%. USA has been able to achieve this; Can we achieve this in Nigeria? Comment below.