CHAPTER ONE

INTRODUCTION

1.1 Background of the study

According to Zou  in 2011 inflation is an unpreventable attribute of every economy in the world. It has an impact on every nation, both developed and developing, in both good and harmful ways. Zou et al. (2011), said inflation is a significant contributor to social and economic instability and disorder. Both conceptually and experimentally, it is one of the most often observed and tested economic variables. Its sources, effects on other economic variables, and total economic cost are all well-known and recognized (Zou , 2011). Pakistan, as a developing nation, has been unable to avoid rising inflation, as well as its causes and repercussions, from year to year. In late 2003, Pakistan’s inflation rate began to increase after maintaining relatively low for a long period (Mohsin and Schimmelpfennig, 2006). In Pakistan, the influence of money supply seems to be important in determining food price inflation (Ashfaque and Qasim, 1996). which harmed both family budgets and consumer buying power People strove to preserve their level of life, but it eventually declined. In Pakistan, inflation stayed around 5% for the first four years of the new century until rising to 9.3% in 2004-05. In 2005-06, it reached an all-time high of 8%. Wheat price rise and the strength of the currency rate remained uneven. However, it seems that excessive money flows to the public and private sectors, as well as increases in import prices in 2003-04 and 2005-06, as well as increases in wheat prices in 2003-04 and 2004-05, have pushed inflationary pressure to dangerously high levels (Farooq, H. Mian et al., 2008). According to the Pakistan Economic Survey 2009-11, inflation was 14.1 percent in the current fiscal year 2010-11 (July-April), compared to 11.5 percent the previous year, while the PIDE Inflation Expectations Survey for March 2011 predicted 15.5 percent inflation for April 2011 and 16.4 percent for May 2011. Inflation is anticipated to continue around 17.0 percent for the next six months and 16.6 percent for the present year, according to the findings. Inflation, as an economic phenomenon, will undoubtedly have an impact on economic activities, which will often have a negative impact on public finances because the purchasing power of money will be reduced, and in order to obtain something, more money will be required, which will eventually affect community/population builders. A human development index (HDI) was first created by the United Nations Development Program (UNDP) in 1990 and is published annually in the Human Development Report (HDR). According to the UNDP, HDI is a composite index that combines three very fundamental areas of human development and is used as an indicator of I health: age life (longetivity); (ii) education: knowledge; and (iii) the economic field: acceptable living conditions (decent living).

1.2 Statement of the problem

According to Zou in 2011 inflation is a word used in economics to describe the moderate rise in the price of goods and services over time (Zou,2011). Inflation is seen as a manifestation of a suffering economy by some, while it is viewed as a sign of a thriving economy by others. Inflation does not affect macroeconomic statistics on its own; it affects the nation’s living standards. When the proportion of inflation rises, the cost of all goods rises with it. It may also be interpreted as a drop in the actual worth of money, which reduces consumers’ buying power and consequently raises their quality of living. Inflation has made it very difficult for many people to get basic essentials that have outpaced their buying power (Mohsin,2006). As a result, they turn to loans to meet their demands, further burdening their family’s finances since they must repay their loans with interest. As a result, it is necessary to investigate inflation and its consequences on residents’ living standards.

1.3 Objective of the study

The primary objective of the study is as follows

  1. To evaluate the causes of inflation on a country.
  2. To determine if inflation has a significant effect on the income level of Nigeria citizens.
  3. To find out if there is a relationship between inflation and standard of living of citizens of a nation
  4. To find out strategy on how the effect of inflation will not be too harsh on living  standard of living of citizens.

1.4 Research Questions

The following questions have been prepared for the study

1)        What is the causes of inflation on a country?

2)        Does inflation have a significant effect on the income level of Nigeria citizens?

3)        Is there is a relationship between inflation and standard of living of citizens of a nation?

4)        What are the strategy on how the effect of inflation will not be too harsh on living  standard of living of citizens?

1.5 Significance of the study

This study will  focus on inflation and its effects on the living standard  of citizens. Hence this study will be significant to policy makers and Nigerian government on the need to work on the economy in other to avoid inflation and its ripple effect on the living standard of citizens.

This study will be beneficial to the academic community as it will contribute to the existing literature.

1.6       Scope of the study

This study will evaluate the causes of inflation on a country. The study will also determine if inflation has a significant effect on the income level of Nigeria citizens. The study will further find out if there is a relationship between inflation and standard of living of citizens of a nation. Lastly, the study will find out strategy on how the effect of inflation will not be too harsh on living  standard of living of citizens. Hence the study is delimited to Nigeria.

1.7       Limitation of the study

This study was constrained by a number of factors which are as follows:

 just like any other research, ranging from unavailability of needed accurate materials on the topic under study, inability to get data

Financial constraint , was faced by  the researcher ,in getting relevant materials  and  in printing and collation of questionnaires

Time factor: time factor pose another constraint since having to shuttle between writing of the research and also engaging in other academic work making it uneasy for the researcher

1.8       Definition of terms

Inflation: the action of inflating something or the condition of being inflated.

Living standard:  Standard of living generally refers to wealth, comfort, material goods, and necessities of certain classes in certain areas.

REFERENCES

Ashfaque H,Khan and Ali, M. Qasim. Inflation in Pakistan Revisited. The Pakistan Development Review 35 : 4 Part || (winter 1996) pp. 747—759.

Farooq, H. M., Ghauri, P. S., Akmal, M. and Abbasi U. M., 2008. Inflation Monitor, State Bank of Pakistan, Economic Analysis Department.

Mohsin S. Khan and Schimmelpfennig, A. Inflation in Pakistan: Money or Wheat?, SBP-Research Bulletin Volume 2, Number 1, 2006

Zou, H., Gong, L. and Zeng, X. Inflation Aversion. Annals of Economics and Finance 12-1, 1{11 (2011)}

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