THE STATISTICAL ANALYSIS ON INFLATIONARY TREND IN NIGERIA

CHAPTER ONE

INTRODUCTION

1.1       BACKGROUND OF THE STUDY

In this contemporary society, one major target of macroeconomic policies is how to achieve stability in the price level. stability here does not mean a situation where the price will remain fixed, it means a situation where variation in price over a long period is minimal. Price stability refers to relative stability in price over a given period of time because for some reasons prices rise and fall periodically. Sellers in the commodity market labour market and capital market kept increasing there prices for some economic and other reasons, in the commodity market producer or sellers complain of increasing cost, employees in the labour market form union and fight for increased wages to enable them meet up with the high cost of living and depreciation in the purchasing power of money, while suppliers of land and capital increase their rents and interest with excuse of rising cost of funds. One ultimate effect is that prices continue to go up from time if this increase in prices where gradual maybe one or two percent per year, people can easily adjust without much complaint. But when prices are rising generally at very fast rate people become very worried and that is when the effect of rising prices becomes of significance to the economy and however lead to a situation known as inflation in view of their devastating effect of inflation in Nigerian economy, this project work will in chapters that follow carry one a “statistical analysis on inflationary trend in Nigeria from the period of 2001 to 2010. According to oxford advanced learners dictionary inflation is a general rise in the prices of goods and services in a particular country resulting in a fall in the value of money  Webster new English college dictionary defines inflation as “an increase in volume of money and credit relative to available goods and services resulting to substantial and continuing rise in general price levels. Solow (1979) sees inflation as going on when one needs more and more money to buy some representative bundle of goods and services or a sustained fall in purchasing power of money steady persistent rise in prices caused by too much money chasing too few goods. It is a state of conflict and disequilibrium in which a given community is struggling to acquire more goods and services that are available. From the diagram above it can be observed that N1000 is originally chasing 200 units of goods and services and the price is established at say A on the price line, the supply while goods and services merely increased by four times to 800 units if the community competes for these limited goods and services there will be excess demand over supply at current price A, the result to too much money chasing too few goods it will be that price will steadily rise to B and may continue to rise if left unchecked by the community.

1.2     STATEMENT OF THE PROBLEM

In recent past there has been alarming increase on the rate of inflation imposing on adverse effect on saving and investment, it has also affected the living standard of Nigerians mostly affected the are the public servants whose incomes are relatively fixed, considering utilization where many industries in Nigeria produce below full capacity because of high cost of raw material, machines, distorting our trade relations with other countries across the border and responsible for constant industrial unrest since with persistent increase in prices, unions like labor and trade union continues to agitate for higher wages This, however, poses a great effect on the performance of various sector of our economy and analysts are not left out in this situation of examining the rate of inflation in our economy in the world. In view of the difficulties created by inflation in Nigeria, the problem of this research work becomes to investigate the trend of quarterly inflationary rate in Nigeria for the periods in view as well as ascertain whether there is seasonal variation in the inflationary rate for those periods and if the yearly inflationary rate depends on some quarters of the year in focus. Another problem of these research survey is to examine how inflationary rate in this period are affected by unpredicted external factors as well as cyclical fluctuation in the trend of inflationary rate and also examine the root causes of inflation in the country and the control measures taken by government, whether  it has yielded any significant result against this devastating problem of inflation which has eaten deep into our economy

1.3      AIM AND OBJECTIVES OF THE STUDY

Based on the increasing problems created by inflation in the Nigerians economy which has led to the devaluation of our money where a large amount of money is found chasing few goods, leading to loss of confidence in our money.

The statistical analysis of the inflationary rate in Nigeria is aimed at achieving the following objectives

(1.)     To ascertain whether there is a quarterly increase in the trend of inflationary rate in Nigeria from 2001 – 2010 and make a forecast for its future occurrence.

(2.)     To investigate if there is any seasonal variation in the quarterly inflation rate in Nigeria for the period in view.

(3.)      To estimate the cyclical and irregular variation in inflationary rate in Nigeria for the period in view for effective prediction.

(4.)    To determine the undependability or otherwise of inflationary rate in some quarters of the year.

(5.)      To identify factors that are responsible for the rate of inflation in Nigeria and if there is any positive effect of inflation in our economy

(6.)      To X-ray, the corrective measures were taken against the inflation rate in Nigeria if it has yielded any significant result.

(7.)     Finally to make necessary recommendations based on an inference drawn from the findings towards fighting the ugly trend of inflation in our society.

1.4      SIGNIFICANCE OF THE STUDY

In view of the objectives which this study has set to achieve in the analysis of the inflationary rate in Nigeria, it is necessary at this point to reveal the contributions and importance of the study to the federal state and local government and general public at large. Therefore the study will be of great significance in the following ways.

(1)      If the inflationary rate in the economy of Nigeria is found to be on increase it will enable the federal government to fight inflation by introducing contractional monetary and fiscal policies.

(2)     Secondly the study will enable the federal government to implement policies and programs like price control measure and rationing of available products in those quarters of the year, where there is more influence of inflation, if it is found out that there will be or there is a strong seasonal variation and if also that the yearly inflationary rate depends on some quarters/period of the year from the analysis carried on the period of the years under review.

(3)    The knowledge of the causes of the inflation rate in our economy will go a long way in reducing the problems by applying some corrective measures to stop these causes.

(4)   Generally, the study will assist decision-makers in the country to realize the importance of keeping data up to date and the usefulness of statistics and statisticians in providing analytical devices in various economic planning and national development.

1.5     THE SCOPE OF THE STUDY

The statistical analysis of inflationary rate in Nigeria economy, however, covers a wide scope which involves several statistical tools as could be possible, but the researcher has narrowed down the study to cover two statistical tools of time series analysis and chi-square X2 test of independence so as to meet up with the requirement of the study over a period of ten(10) financial year from (2001 – 2010) has been chosen so that the quarters of the years could be properly taken care of, which makes the series of (4 x 10) = 40 quarters which is a researchable scope.

1.6    STATEMENT OF HYPOTHESES

Ho: There is no significant increase in the trend of an inflation rate of Nigeria from (2001 -2010)

Hi: There is a significant increase in the trend of an inflation rate of Nigeria from (2001 -2010)

Ho: There is no significant seasonal variation in the inflationary rate of Nigeria from 2001- 2010

Hi: There is significant seasonal variation in the inflationary rate of Nigeria from 2001 -2010

Ho: Yearly inflationary rate is independent of the variation of the quarters of the years from 2001 -2010

Hi: Yearly inflationary rate is not independent of the quarters of the year from 2001 – 2010

1.7        DEFINITION OF TERMS

Macro-economics: this is a branch of economics that is concerned with aggregate economics activities, issues mostly treated in this includes inflation, national output, employment, price levels income levels and distribution as well as a balance of payments.

Inflation: this refers to a persistent rise in the general level it is also a state of conflict and disequilibrium in which a given community is struggling to acquire more goods and services than available.

Deflation: This refers to a persistent fall in the general price level of most goods and services since price falls the value of money rise during deflation.

Microeconomics: This is the branch of studies in economics concerned primarily with the economic behavior of small units.

FISCAL POLICY: This involves the use of taxation and government expenditure policies to influence the economy in order to improve the balance of payment situations.

INFLATIONARY: this is connected with a general rise in the price of services and goods.

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