INFLATION – CAUSES THEORIES, COST AND CURES
Inflation is associated with rising price. It is a situation in which there is a sustained, inordinate (excessive), and general increase in prices. There is a continuous fall in the value of money as there is too much money chasing after too few goods. The increase in prices must last for a reasonable period of time. If prices go up during this period and fall in the next, then it is mere price fluctuation. The increase in price must be excessive by that country's experience. Inflation is the rise in average price of all goods that we buy and not just of one item.
1.1 TYPES OF INFLATION
The most common types of inflation are Creeping Inflation, Chronic Inflation, and Hyperinflation. The definitions of each are as follows:
(a) Creeping inflation (Low to Moderate Inflation):
Most stable nations in the world have to deal with inflation at some level and try to maintain a target inflation rate of around 1-2% but depending on the state of the country’s economy it can reach up to 6%. You could consider this a natural rate of inflation that is almost impossible to eliminate.
(b) Chronic Inflation (High Inflation):
For some industrialized nations and developing nations inflation is high and can continue to increase each year possibly reaching annual rates of 10% to 35% and possibly greater in some places.
It is defined as chronic because the high inflation rate persists over time without any downward movement, possibly leading to hyperinflation rate.
The most popular period for Hyperinflation was after World Wars I and II. During these harsh economic times many countries saw extremely high price increases ranging from 15 to 80% year over year. With inflation rates this high prices become ‘out of control’ as the purchasing power of money quickly dwindles.
In 1995, inflation in Nigeria reached an unprecedented rate at 72.8%. This was caused mainly by rising prices associated...