IMPLICATION OF INFLATION ON THE NIGERIA ECONOMY A STUDY OF DANGOTE INDUSTRY
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- Regression
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Introduction
Nigeria's most worrisome macroeconomic issue is its inflation rate. Due of its accelerating speed, the Nigerian government is concerned about its impact on the country's economic growth. All of the authors agree that inflation has an effect on Nigeria's economic progress, despite the fact that a great deal has been written about it.
According to Samuelson (2017), inflation consists of "usually rising expenses for products, autos, haircuts, rising salaries, rent, etc." Onwukwe (2018) defines inflation as a significant and persistent increase in the overall price level or a fall in the value of monetary units. During an inflationary period, a fixed sum of money will buy less products and services. The real worth of money has decreased, as has the purchasing power of people.
Inflation makes it more difficult for businesses throughout the world to plan for the future. Because corporations cannot predict demand for their products at higher prices, which they will need to charge to cover their expenses, determining how much to produce is extraordinarily challenging (Boyd, 2020). Not only does high inflation make it harder for a country's financial institutions and markets to function, but it also hinders their ability to connect with global markets. Inflation generates uncertainty regarding future prices, interest rates, and currency rates, which increases the risk of trade between potential partners and discourages business (Wamucii, 2019).
According to economists, inflation and hyperinflation are caused by an excessive increase of the money supply. Diverse perspectives exist about the causes of low to moderate inflation rates. Low or moderate inflation can be attributed to changes in real demand for goods and services, changes in available supplies, such as during scarcities, and the increase of the money supply. Consensus holds, however, that a prolonged period of inflation is caused by the money supply rising faster than the rate of economic growth (Adaramola, & Dada, 2019).
The majority of notable economists today call for a moderate, steady inflation rate. Low inflation (as opposed to zero or negative inflation) can assist alleviate the severity of economic downturns by allowing the labor market to respond more quickly and minimizing the likelihood of a liquidity trap that prevents monetary policy from restoring stability. Maintaining a low and stable rate of inflation is often the responsibility of monetary authorities. In general, these monetary authorities are central banks that manage the money supply by establishing interest rates, conducting open market operations, and enforcing banking reserve requirements (Lipsey, 2018).
In any business context, an inflationary atmosphere that is on the rise creates substantial challenges, particularly for financial planners. Inflation may be characterized as an increase in the price of necessities such as food, clothing, medical services, and energy, or a loss in the value of money, such that it takes more money to purchase the same goods and services, meaning that money is losing its purchasing power. Inflation is a technique through which savers and investors shift money to debtors (Wamucii, 2019). It penalizes individuals who postpone their enjoyment in order to invest in the building of roads, schools, industries, and businesses, while rewarding those who are in debt. It is a terrible moral evil that is mostly caused by governments generating money to pay for expenses that cannot be paid by ordinary treasury profits (Adu 2016). This circumstance may have an effect on the financial planning of industrial enterprises such as Dangote.
When the price of goods and services rises, the purchasing power of money declines, making inflation a significant concern in many economies. Profitability is affected by inflation since it reacts to sales volume and impacts cost levels.
With a fundamental understanding of inflation's impact on the Nigerian economy and the realization that the problems caused by inflationary growth are becoming intolerable for citizens and the economy as a whole, it is essential to examine the impact of inflation on the Nigerian economy using Dangote Industry as a case study.
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