Impact of Price Increase on Cost of Living in Nigeria (1982-2016)
Chapter One
OBJECTIVES OF THE STUDY
The main aim of the study will be to examine various monetary and fiscal policies that will help sustain the economy of Nigeria with much emphasis on how to reduce Price Increase and achieve lower cost of living for her citizenry.
Specific objectives of the study will be aimed at:
- To determine the impact of Price Increaseon the cost of living in Nigeria.
- To examine the impact of Price Increaseand cost of living on economic growth in Nigeria.
- To examine what constitutes cost of living, and how it negatively affects economic growth.
- To recommend to monetary authorities and the government on how Price Increaseand cost of living can be reduced to an acceptable level.
CHAPTER TWO
LITERATURE REVIEW
INTRODUCTION
This chapter sheds light on different works and literatures related to this subject of study to fill gaps of previous works and theories. The issues discussed are categorized under three broad headings namely: Conceptual Framework, Theoretical Framework and Review and Empirical Reviews.
Finally, the empirical review deals with the review of the methods adopted by different researchers in their estimation process as well methodologies used to achieve the various results.
In summary, this chapter will help one view the subject of study from different perspectives as reviewed in the various literatures, thus a platform/ framework is created based on the three major categorized for further research to be carried out.
CONCEPTUAL FRAMEWORK
CONCEPT OF INFLATION
There has been a proliferation of definition of inflation. Some of these definitions however express the descriptions of the processes by which the underlie causes of inflation reveal themselves. Consequently, an understanding of what the phenomenon is really pointing to is obscured. According to public understanding by inflationis meant to condition which produces a using trend in the general price level in the economy (Akatu, 1963).
In attempt to define inflation, most economics succeeded only in pointing to specific aspects of the phenomenon thereby giving the impression that the term is not amendable to only one definition. some people have coined the following expression “an increase in the amount of currency, too much money chasing too few goods’’ when referring to inflation. Many of these definitions at their best would not help us in using the term for purpose of further investigations.
According to Griffiths (1976), ‘’ if inflation is defined s too much money chasing too few goods’’, then the dice is based in favour of monetary theory of inflation, implying that it can be controlled through monetary policy’’ (Yubwen 1996) however define inflation in
‘’ An economy is commonly regarded as suffering from inflation when it is undergoing period of continuously rising price’’
This definition point to the fact that, for a price rise to be described as inflation, it must be sustaining over a long period. In agreeing with Garwens definition of the sustenance of the price rise, went a step further than Garwen’s and Griffith defining inflation as ‘’a sustained rise in the general price level” what is meant by ‘’general’’ here is that all prices may not be rising at the same commodities may even be experiencing downward trends in their prices. The main advantage of this definition as claimed by Griffith (1996) is that, it is neutral with respect to the cause of inflation and the most appropriate policy for bringing it under control. Another definition worth nothing is that given by Odeh (1968). According to him, inflation is a ‘’significant price increase for number of years’’ he argues that significant here means that level of price rise that may be regard as inflation for different countries may not be the same, and that this will depend on their past experience of the trend of prices in the economy in question. A definition that seems to be more embracing is the one given by, GarderAckely (1972)
‘’According to him, inflation is persistent and appreciable rise in the general level or average of prices’’. In addition to all the above views about inflation Hagger (1977) maintained further, that inflation really come to the surface due to constitutional controls.
Some economist in their own strength have defined inflation quantitatively, in this wise, Parkin and Swoboda (1977) defined inflation as ‘’ the first different of logarithm of some price index’’ elaborating on this, Pakin and Swiboda however stated, that the breath of the index and the length of the time over which the change is considered as matters in which the choice also depend of course, on the problem at hand hence consumer price index or wholesale price index can be used.
CHAPTER THREE
THEORETICAL FRAMEWOK AND RESEARCH METHODOLOGY
INTRODUCTION
This chapter provides insight of the methods considered in the study. The instruments as well as the methods used for data collection will be examined. The chapter will contain the research design (3.1), the method of data collection (3.2), the method of data analysis (3.3), and lastly the model specification (3.4).
RESEARCH DESIGN
The study is quantitative, data analysis is carried out using econometric method to find the relationship between cost of living and inflation in Nigeria. This quantitative research design will apply models with economic theoretical backings to estimate this relationship.
METHODS OF DATA COLLECTION
The study used secondary source of data, which will be sourced from CBN statistical bulletin, 2017, for variables including, human development index (HDI), Inflation rate (INF) from the period of 1982-2016.
METHOD OF DATA ANALYSIS
Data will be analysed using Regression analysis.The method of ordinary least square (OLS) of econometric technique would be used to run the regression, it will be used to estimate the relationship specified variables.
The Augmented Dickey-Fuller unit root test was used to determine stationarity of data. The Auto Regressive Distributed Lagged (ARDL) model was used to determine the long-run relationship between the independent variables and standard of living in Nigeria. The error correction model (ECM) was also used to test the speed at which present and past values of our variables help the model to return back to equilibrium. Data obtained was analyzed using E-View to be able to obtain accurate results for proper recommendations. Given the estimated model for this research, we expected that inflation rate proxied by CPI has a negative effect on standard of living proxied by HDI.
CHAPTER FOUR
RESULT AND FINDINGS
The result as contained in Table 1 shows that there are 19 observations for each of the series. The maximum and minimum values of the Human Development Index (HDI; measure of standard of living) are 0.532 and 0.401 respectively with a standard deviation of 0.040. These indicate that the series varies significantly during the period. From the table, the average value of standard of living (HDI) is 0.479. The Inflation Rate (IR) during the period takes its values between 5.38% and 18.87% with an average value of 11.76%. GDP growth rate (GDPGR) figures recorded during the period of this study ranges from -1.62% and 15.33%. The standard deviation value of 3.64 with the lowest and highest figure ever recorded indicating that the figures actually vary significantly during the period of study. However, the average is 5.77%. Generally, the shape statistics especially reveals that the distributions of the series are normal since the computed values of skewness, kurtosis and Jarque bera. The Durbin-Watson value of approximately 2 also indicated that a long run relationship exited between the variables as such validating our model.
CHAPTER FIVE
CONCLUSION AND RECOMMENDATION
Conclusion
Based on findings we can support the study of Doguwa (2015) which opined that at a certain level price increase becomes inimical to economic growth. By implication we can hereby conclude that inflation rate has effect on standard of living in Nigeria. The study also supports the work of Chimobi, O. P. (2010) who also opined that high Price Increase had a negative and significant effect on economic growth. The study hereby recommended that the government adopt a blend of fiscal and monetary policies to curb the high Price Increase and elevate the standard of living of Nigerians. The reason for this is based on the fact that the Price Increase challenge faced by Nigeria cannot be combatted by strictly adopting fiscal policies or otherwise.
Implication of Research and Practice
The negative effect Price Increase rate exhibited on standard of living implies that increase in Price Increase engenders decrease in the standard of living. This finding is in line with our a priori expectations. Our findings on Price Increase is also in line with theory in literature and findings of other researchers like Doguwa (2015) who found that Price Increase at a high level is inimical to economic growth in Nigeria.
Future research
During the course of this study we have found that Price Increase is not the only factor responsible for the poor standard of living in Nigeria, therefore future researchers can adopt other factors in relation to standard of living in Nigeria.
REFERENCE
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