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meaning of inflation and how does inflation affect common man?

A. WHAT IS INFLATION
Inflation is one of the most frequently used terms in economic discussions, yet the concept is variously misconstrued. There are various schools of thought on inflation, but there is a consensus among economists that inflation is a continuous rise in the prices. Simply put, inflation depicts an economic situation where there is a general rise in the prices of goods and services, continuously. It could be defined as ‘a continuing rise in prices as measured by an index such as the consumer price index (CPI) or by the implicit price deflator for Gross National Product (GNP)’. Inflation is frequently described as a state where “too much money is chasing too few goods”. When there is inflation, the currency loses purchasing power. The purchasing power of a given amount of naira will be smaller over time when there is inflation in the economy. For instance, assuming that N10.00 can purchase 10 shirts in the current period, if the price of shirts double in the next period, the same N10.00 can only afford 5 shirts.
In the definition of inflation, two key words must be borne in mind. First, is aggregate or general, which implies that the rise in prices that constitutes inflation must cover the entire basket of goods in the economy as distinct from an isolated rise in the prices of a single commodity or group of commodities. The implication here is that changes in the individual prices or any combination of the prices cannot be considered as the occurrence of inflation. However, a situation may arise such that a change in an individual price could cause the other prices to rise. An example is petroleum product prices in Nigeria. This again does not signal inflation unless the price adjustment in the basket is such that the aggregate price level is induced to rise. Second, the rise in the aggregate level of prices must be continuous for inflation to be said to have occurred. The aggregate price level must show a tendency of a sustained and continuous rise over different time periods. This must be separated from a situation of a one-off rise in the price level.

Broadly, inflation can be grouped into four types, according to its magnitude.

  1. Creeping Inflation: This occurs when the rise in price is very slow. A sustained annual rise in prices of less than 3 per cent per annum falls under this category.
    Such an increase in prices is regarded safe and essential for economic growth.
  2. Walking Inflation: Walking inflation occurs when prices rise moderately and annual inflation rate is a single digit. This occurs when the rate of rise in prices is in the intermediate range of 3 to less than 10 per cent. Inflation of this rate is a
    warning signal for the government to control it before it turns into running inflation. 3. Running Inflation: When prices rise rapidly at the rate of 10 to 20 per cent per annum, it is called running inflation. This type of inflation has tremendous adverse effects on the poor and middle class. Its control requires strong monetary and
    fiscal measures.
  3. Hyperinflation: Hyperinflation occurs when prices rise very fast at double or
    triple digit rates. This could get to a situation where the inflation rate can no longer be measurable and absolutely uncontrollable. Prices could rise many times every day. Such a situation brings a total collapse of the monetary system because of the continuous fall in the purchasing power of money.

    Causes of inflation

 

  1. Demand-pull
  2. Cost-push and
  3. Inflation expectations 

 

As their names suggest, ‘demand-pull inflation’ is caused by developments on the demand side of the economy, while ‘cost-push inflation’ is caused by the effect of higher input costs on the supply side of the economy. Inflation can also result from ‘inflation expectations’ – that is, what households and businesses think will happen to prices in the future can influence actual prices in the future. These different causes of inflation are considered by the Reserve Bank when it analyses and forecasts inflation.

 

The effect of inflation on common man

  How inflation affects common man is a cycle that needs to be fixed. Firstly, consumers lose purchasing power as the prices become too high and the rise in price significantly impacts consumer spending and customer relationships.

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By Unuaigboje Sunday O.

My Journey as an Adult Educationalist. Born in a small town named somorika, my passion for education was evident from a young age. Growing up in a modest household, i was inspired by teachers who kindled the flame of curiosity within them. Driven by a thirst for knowledge, my protagonist excelled in my academic endeavors. I pursued higher education, specializing in adult education, where I discovered my calling to empower and uplift individuals through learning. Entering the field of adult education in the great University of Benin i embarked on a journey filled with challenges and triumphs. Working in diverse settings, from construction firms to corporate boardrooms, they honed my skills as an educationalist dedicated to fostering lifelong learning. As an adult educationalist, i became known for my innovative approaches to teaching and learning. Embracing technology and new methodologies, I transformed traditional educational practices, making learning more accessible and engaging for adults of all backgrounds. Beyond the classroom i emerged as a passionate advocate for adult education. I lobbied for policy changes, promoted the value of lifelong learning, and inspired others to join the cause of empowering adults through education. Today, my adult educationalist continues to make a profound impact in the field, leaving a lasting legacy of enlightenment and empowerment. The journey serves as an inspiration to aspiring educators and learners alike, illuminating minds and shaping the future of adult education.

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