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How to reduce inflation in Nigeria

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Inflation can be defined as the consistent rise in the price of goods and services within a country or state.

Inflation is a common word in Nigeria.
From market women to government workers to politicians, everyone knows inflation is a recurring problem in Nigeria .
There is hardly any Nigerian who is not affected by the consistent rise in the prices of goods and services in the country.

Uncontrolled inflation can dislocate the economy and cause socio-economic disaster.
Although the problem of inflation or let’s say its evils are subtle and so may be ignored.

Inflation or rise in price of things as we know it , began in Nigeria during and after the Nigerian civil war. Since then prices have continued to rise irrespective of efforts by successive governments to curb the menace.
However, to a large extent this has not been successful.

If we must overcome this problem, the following steps may be necessary to follow:

Monetary policy refers to measures influencing the amount of money in circulation. This includes paper money (notes), coins as well as bank deposits held by businesses and individuals.

Monetary policy in a nutshell means the control exerted over the money-creating power of the 22 commercial banks in our economic system.
Monetary policy affects rates of interest on loans and the ease at getting those loans.

We can use monetary policy to control inflation by:

A.  Open market operations:
This is when inflation puts too much pressure on the economy such that the creation of money needs to be restrained.

The central bank of Nigeria can sell bonds to the public.
This would reduce the amount of money in circulation and with reduced money in circulation inflation would also reduce as the purchasing power of the consumers would reduce.

B. Reserve Requirements:
A very effective measure against inflation is the change in reserve requirement which means change in the amount of money that must be deposited by the commercial banks to the NIGERIA DEPOSITE INSURANCE CORPORATION(NDDC) to back the bank’s deposit holding for the public.

This can be used to control the amount of money in circulation which will In turn control inflation.

The reserve requirement can be raised. When raised, it will force the commercial banks to restrict their loans and thus reduce the amount of money in circulation

Fiscal policy refers to the changes that can be made in government spending and taxation in a bid to regulate the economy.
To control inflation , the government can increase taxes and reduce its expenditure. This in turn will reduce individual disposable income or purchasing power.
The reduction in purchasing power will reduce excesses that caused inflation in the first place.

Other methods can also be employed when the aforementioned ones fail to achieve the desired results.
Some of these methods include price control by the government, wage freeze (a situation when wages are not allowed to rise ) and rationing of commodities in times of scarcity.

Inflation is a dangerous trend that shouldn’t be toyed with. It will be good for the government and the populace to tackle this problem with utmost seriousness.

Have a different opinion?
Comment in the box below.


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4 Responses to How to reduce inflation in Nigeria

  1. Nicholas says:

    So what is the solution?

  2. Ikin says:

    I love your article keep it up

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