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Nigeria; The implications of increase in inflation rate

Nigeria’s annual inflation rate increased to 22.04%  in March, marking the third consecutive month of rise, according to the latest report by the National Bureau of Statistics (NBS). Food inflation rate also increased to 24.46 percent in March, and headline inflation rate was 6.13 percent points higher compared to March 2022. The main contributors to the increase in the headline index were food and non-alcoholic beverages, housing, water, electricity, gas, and other fuel. Other contributors included clothing and footwear, transport, furnishings, household equipment, and maintenance, education, health, miscellaneous goods and services, restaurant and hotels, alcoholic beverage, tobacco, and kola, recreation and culture, and communication.

The implications;

1. Decrease in purchasing power: As the prices of goods and services rise, the purchasing power of consumers decreases. This means that people will buy fewer goods and services with same or increased amount of money. For example, you could buy 2 loaves of bread for N1000 now, 1 loaf of bread cost N700 & N1000

2. Increase in interest rates: Central bank may increase interest rates to combat inflation. This means that borrowing becomes more expensive for businesses and consumers, which can lead to a decrease in spending and investment.

3. Decrease in economic growth: High inflation can lead to a decrease in economic growth. This is because businesses may not be able to afford to invest in new projects or hire new employees due to the high cost of borrowing.

4. Uncertainty in financial markets: Inflation can lead to instability in financial markets, which can cause investors to lose confidence and reduce their investments.

5. Redistribution of wealth: Inflation can lead to a redistribution of wealth from savers to borrowers. This is because the real value of savings decreases, while the value of debts remains the same.

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