Inflation can be a confusing topic for anyone, let alone a five-year-old. But understanding what inflation is and why it happens can be helpful for people of all ages, especially in a country like Nigeria, where inflation has been a significant economic issue for many years. What exactly is inflation, and how does it affect us, even if we’re just five years old?
Inflation is the rise in the general price level of goods and services over time. This means that over time, things become more expensive. So, if you used to buy a toy for ₦100, you may now need to pay ₦120 or more to buy the same toy. The same applies to other things like food, clothes, and even services like transportation. In Nigeria, inflation has been a persistent problem, with double-digit inflation rates over the years. It is currently at above 22%.
Now, you may be wondering why prices go up. There are several reasons for this which include:
Increase in the supply of money
One of the main reasons is the increase in the supply of money. When there is more money available in the economy, people have more money to spend, which can cause an increase in demand for goods and services. If the supply of goods and services does not keep up with the demand, prices can rise.
Increase in production costs
Another reason for inflation is the increase in production costs. When it costs more to produce goods and services, the companies producing them may need to increase their prices to make a profit. For example, if the cost of raw materials used to produce a toy goes up, the company making the toy may need to increase the price of the toy to cover its costs.
In Nigeria, inflation has been a significant issue for many years. The country has experienced double-digit inflation rates, meaning prices have been rising rapidly.
Below are the causes of inflation in Nigeria.
Government policies
The main causes of inflation in Nigeria include government policies, such as printing more money to finance government spending and the devaluation of the Nigerian currency, the naira. Devaluation happens when the value of the naira decreases compared to other currencies, making it more expensive to import goods into Nigeria.
Cost of importing goods
Other factors that have contributed to inflation in Nigeria include the high cost of importing goods due to the weak naira, high transportation costs, and insecurity in some parts of the country. Insecurity can disrupt the supply chain of goods, leading to shortages and higher prices.
How does inflation affect us?
Affects the cost of goods and services
Even if we’re just five years old, Inflation can affect the cost of goods and services that we or people around us are able to buy for us. When prices go up, our people may not be able to buy as many things, and we may need to do without some of the things we used to have. Inflation can also affect the amount of money that our parents have to spend on other things, like paying for our school fees and medical bills.
Makes it difficult to save
Inflation can also make it harder for people to save money. If you save your allowance every week and wanted to buy a toy that costs ₦100, but now it costs ₦120, you would need to save more money to buy it. This means that people may not be able to save as much as they would like to, making it harder to plan for the future.
Inflation can be a complicated topic, but it’s important to understand what it is and why it happens to help us to be better prepared for the future.
