Modelling the Inflation Process in Nigeria

MODELLING THE INFLATION PROCESS IN NIGERIA 2. Nigeria’s aggrandizement acquaintance Nigeria has accomplished all address of inflationary episodes – from bit-by-bit to abstinent and from aerial to galloping (see Table 1 and Amount 1). Boilerplate aggrandizement during the aeon 1960–1972 was about low, the actual boilerplate bulk actuality 5. 01%. Back adjourned on an anniversary basis, however, ascent prices became a account for affair for the again aggressive government back in 1969 the aggrandizement bulk hit bifold digits at 10. 36%. Government’s affair seems to accept been justified by the actuality that Nigeria was experiencing double-digit aggrandizement for the aboriginal time, in the face of a angry civilian war whose end was not again in sight. In reaction, government imposed a accepted allowance benumb for a aeon of one year. Apparently acquainted of accessible action by labour unions, bulk ascendancy measures were alien with the official promulgation of the Bulk Ascendancy Decree, aboriginal in 1970 (see Fashoyin, 1984, for absolute altercation of anti-inflation measures taken during this period). Inflationary pressures connected unabated, however, alike with bulk controls. Table 1: Aggrandizement episodes in Nigeria Aeon Boilerplate 1960–1972 5. 01 1973–1985 17. 96 1986–1995 31. 30 1986–2002 13. 34 Source: Computed by the authors Pressures for bacon increases led to the ambience up of the Wages and Salaries Review Commission. The Commission eventually accepted bacon increases to all categories of accessible account employees, and agnate adjustments were after fabricated in the clandestine sector. These awards, which came at a time back the break of calm assembly and business as a aftereffect of the civilian war had not been absolutely repaired, generated a admeasurement of balance appeal in the economy. This is acceptable to accept been amenable for the acceleration in the bulk of aggrandizement by 16. 0% in 1971. Government’s actual acknowledgment was to lift acceptation restrictions on several categories of goods. Excise duties on a cardinal of appurtenances were additionally reduced. A acclaim action that favoured the assembly of aliment was additionally put in place. These efforts, accompanying with the enactment of the Nigerian National Accumulation Company (NNSC), were accustomed with acquiescent the about low bulk of aggrandizement of 3. 2% recorded in 1972. The aeon 1973–1985 was one of greater inflationary pressures than the aeon 1960–1972, with an boilerplate aggrandizement bulk in those years of 17. 96%. The furnishings of the 3 RP 182_Olubusoye_maintext. pmd 21/10/2008, 14:29 3 6 RESEARCH PAPER 182 Barter bulk regimes and aggrandizement in Nigeria Inflation and barter ante accept been articular as two of the key “barometers” of bread-and-butter achievement (Rutasitara, 2004). Barter bulk arrange in Nigeria accept undergone cogent changes over the accomplished four decades, alive from a anchored administration in the 1960s to a called adjustment amid the 1970s and the mid 1980s, and assuredly to assorted types of amphibian administration adopted in 1986 with the SAP. A administration of managed float, after any able charge to arresting any accurate parity, has been the absolute appropriate of the amphibian administration in Nigeria back 1986. Exchange bulk action emerged as one of the arguable action instruments in developing countries in the 1980s, with angry action to abasement for abhorrence of its inflationary impact, amid alternative effects. Nigeria faced such a bearings and there has back been absorption in the achievement of aggrandizement and the role of the barter bulk in the process. The abnormality of the Nigerian adopted barter bazaar needs to be highlighted. The country’s adopted barter balance are added than 90% abased on awkward oil consign receipts. The aftereffect is that the animation of the apple oil bazaar prices has a absolute appulse on the accumulation of adopted exchange. Moreover, the oil area contributes added than 80% of government revenue. Thus, back the apple oil bulk is high, the acquirement aggregate by the three tiers of government rises correspondingly, and as has been empiric back the aboriginal 1970s, elicits commensurable bulk increases, which are again difficult to accompany bottomward back oil prices collapse and revenues fall. Indeed, such unsustainable bulk levels accept been at the basis of aerial overnment arrears spending. It became a bulk of austere affair that admitting the huge bulk of adopted exchange, which the Central Bank of Nigeria (CBN) supplied to the adopted barter market, the appulse was not reflected in the achievement of the absolute area of the economy. Arising from Nigeria’s aerial acceptation ability of accomplished customer goods, the adopted barter balance from oil connected to accomplish achievement and application advance in alternative countries from which Nigeria’s imports originated. This development apprenticed a change in action on 22 July 2002, back the appeal burden in the adopted barter bazaar agitated and the burning in alien affluence akin persisted. The CBN appropriately reintroduced the Dutch bargain arrangement (DAS) to alter the inter-bank adopted barter bazaar (IFEM). Back then, the DAS has been abundantly acknowledged in accomplishing the objectives of the budgetary authorities. Generally, it assisted in absorption the arbitrage exceptional from bifold digits to a distinct digit, until the actualization of aberrant bazaar abandon in the fourth division of 2003. Figure 2 archive the capacity of the movements in aggrandizement and the alongside bazaar exceptional over the official barter rate. As can be apparent in the figure, movements of the alongside barter bulk exceptional and aggrandizement bulk were actual close, abnormally during the mid 1970 and aboriginal 1990s. Indeed, this was the aeon of widest alteration amid the official and alongside bazaar barter rates. As can be apparent from the graph, the peaks and troughs about consistently go together, appropriately acknowledging that the alongside bazaar barter bulk was decidedly activated with the aggrandizement rate. RP 182_Olubusoye_maintext. pmd 21/10/2008, 14:29 6

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