THE IMPACT OF INFLATION ON THE MANUFACTURING SECTOR OF THE NIGERIAN ECONOMY (1981- 2011)

                                                 CHAPTER ONE

INTRODUCTION

1.1.1        Background Of The Study

Inflation has remained a chronic problem for Nigerian economy for some time. Inflation is not a new wood in the world economy and not out rightly bad, but the case of Nigeria is severe and i t will destabilize the entire economic frame work if it is not properly checked. This problem has brought about reduction of purchasing power discouragement of real investment balance of payment disequilibrium and unemployment.

Inflation in Nigeria can be said to be a direct result of the policies of the country’s govern fast rate of economic growth and development since 1951when it was introduced. Inflation trend since independence shows to distinctive period. Until 1969 we had a single digit inflation and even a negative growth rate in 1963, 1967 and 1968. The year 1975, recorded 33-7 percent indicating the effect of 1974 Udojji salary

 

The Nigerian economy seemed to have experience moderate inflation prior to the advent of the structural Adjustment programme (SAP) in 1986. Inflation on it own is not bad as studies have shown that there exists a positive relationship between inflation and growth. But the problem lies on a country continuously having high inflation rates. It has been revealed that a close relationship exists between inflation and diminishing growth rate across a variety of inflation ranges. Average growth rates falls slightly as inflation rate across a variety rates more towards 20-25 percent. The growth rate declined more steeply as inflation rates approaches 25-30 percent and growth rates became increasingly negative at a higher rate of inflation (Ogwuma, P.A. 1986; Gains and pains of inflation in the manufacturing sector of the Nigerian  economy”

Manufacturing involves the conversion of law materials into finished consumer goods or intermediate or producers            goods  manufacturing  creates  avenues  for

employment, helps to boost agriculture, helps to diversify the economy while helping the nation to increase its foreign exchange earnings and enables local labour to acquire skills. The manufacturing sector in Nigeria has passed through four clear stages of development.

The first was the pre-independence era, when manufacturing was limited to primary processing of simple consumer items by foreign multinational corporations.

1.2  Statement Of the Problem

Inflation worsens the balance of payment positions. Inflation has helped forced up interest rates thus determining investment and so by doing reduces the real values of aggregate consumer wealth such as government debt and money. It has inhibited and distorted consumer spending by rising domestic prices relative to foreign prices, the currency inflation inhibits exports and stimulates imports thus, depleting the nations scarce foreign resources.

Due to the inflationary situation savers find out that the value of their savings is eroded hence they are forced to add their current consumption thus hindering capital formation and the economic nation’s growth. Inflation militates against long term savings plan of the consumer and hence becomes a function in improving a sub optimal lifetime consumption pattern upon the consumer.

Current inflation rates in Nigeria have tremendously complicated and continued to complicate the task for makers of government fiscal and monetary policies. Even when they believe that rate of inflation is really the public does not. This inflation not only makes it harder for policy makers to diagnose the factors affecting aggregate demand.

For complete materials (Chapter One to Chapter Five), visit www.researchshelf.com