EFFECT OF INFLATION ON SOCIOECONOMIC STATUS OF HOUSEHOLD IN NIGERIA

CHAPTER ONE

INTRODUCTION

Background of the Study

Globally, high inflation continues to be a significant unresolved matter. It is a prominent concern that affects the overall economy of nearly every country worldwide. Inflation refers to the persistent and steady rise in the general prices of goods and services within an economy. Nevertheless, it is indisputable that inflation is a prevalent phenomenon in diverse global economies. The differences may be seen in the time-related features, fundamental factors, duration, and present economic conditions. Inflation, as described by Kayode (2020), is a situation when there is a significant and sustained rise in the general price level within an economy for a longer duration. This leads to a decline in the currency's purchasing power as a result of the ongoing increase in the prices of goods and services within the country. 

Hossain and Islam (2022) contend that elevated inflation exerts an adverse influence on economic performance, whereas a state of zero inflation is equally deleterious since it may lead to economic stagnation. They propose that a moderate level of inflation is essential for economic advancement. However, inflation is a worldwide concern that impacts both emerging market economies and developed market economies. It is not exclusive to any particular country. Controlling inflation is widely regarded as a crucial concern by authorities worldwide, despite its longstanding nature. 

While inflation seems to be a global menace, developing nations are typically characterized by high inflation rates, whereas sophisticated economies tend to have low inflation rates. This illustrates the disparity in living standards between individuals residing in less developed economies and their counterparts in advanced economies. Farid, Khan, Warriach, and Warriach (2022) states that when commodity prices rise, consumers' tendency to save decreases, which negatively impacts their standard of living. According to Farid, et al (2022), fluctuations in costs of products and services lead individuals to seek additional money, often at the cost of their health, in order to maintain a basic quality of life.  Additionally, this would result in a ripple effect that ultimately leads to hindered economic growth and development in the affected country. According to Burke and Ozdagli (2023), the ordinary household does not anticipate that wage growth would be linked to the inflation rate. Consequently, as predicted inflation rises, it leads to a negative impact on income, which in turn inhibits expenditure. 

Contextually, in Nigeria, the inflation rate has a cyclical pattern. Nigeria experienced single-digit inflation for a period of 7 years, from 1982 to 2007. Bawa, Abdullahi, and Ibrahim (2019) identified the years between 1982 and 2007 in Nigeria when the inflation rate remained in single digits. These years include 1982 with an inflation rate of 7.7%, 1985 with an inflation rate of 7.4%, 1986 with an inflation rate of 5.7%, 1990 with an inflation rate of 7.4%, 2000 with an inflation rate of 6.9%, and 2006 with an inflation rate of 8.2%. Bawa, et al (2019) also reported that the inflation rate in Nigeria hit its highest point at 18.87% in 2001.  Likewise, Tolcha (2018) contended that a high inflation rate had a disproportionate impact on both the poor and the rich, since their consumption patterns were found to be highly responsive to changes in real income. However, the effect was found to be more severe among individuals with low income levels. Controversy persists in Nigeria regarding the impact of inflation on the standard of living. 

Statement of the Problem

In recent times, Nigeria, a country rich in both human and natural resources, has been confronted with persistent issues of economic instability and persistent inflation.  According to Lu et al. (2019) and Jia et al. (2019), inflation has been a long-standing problem, mostly driven by reasons such as political instability, volatile oil prices, and underlying problems in the economy. The nation's over dependence on oil earnings has rendered it exceptionally susceptible to global oil price fluctuations. In a study by Amanin & Adebayo (2020), the elevated inflation rate in Nigeria, surpassing the single-digit threshold, reflects the severe challenges faced by the country in terms of weak macroeconomic growth and stability. However, Koch and Bosch (2019) noted that rising inflation adversely affects the poor but does not have a very harmful impact on them. However, Mwanzia (2020) contended that the standard of living in Africa has declined due to an increase in household expenditure and a decrease in real income caused by high inflation. This has resulted in a decline in the quality of life, including negative impacts on health, life expectancy, and a higher mortality rate in impoverished households.

Although pprevious governments in Nigeria since the advent of democracy have taken diverse strategies to mitigate inflation, with restricted efficacy. Despite these efforts, inflation persisted at a consistently high level, with an average annual rate of approximately 15-18% between (World Bank, 2022). Conversely, Chimobi (2020) argued that there was no significant correlation between inflation and the standard of living in Nigeria. Similarly, Bawa, Abdullahi, and Ibrahim (2016), as well as Gagarawa and Mehrotra (2017), held similar views. We believe that there is a significant correlation between inflation and the standard of living in Nigeria. Despite the abundance of empirical studies on inflation, this specific understanding is limited to a select few. Hence, it is in the light of these that the study seeks to examine effect of inflation on socioeconomic status of household in Nigeria.

 1.3 Objectives of the Study

The main purpose of this study is to examine effect of inflation on socioeconomic status of household in Nigeria. Specifically, the study will;

Determine the extent inflation has affected the employment status of households in Nigeria

Determine the extent inflation has affected the income level of households in Nigeria

Determine the extent inflation has affected the purchasing power of households in Nigeria

Determine the extent inflation have increased the level of poverty among households in Nigeria

1.4  Research Questions

The following questions have been prepared for the study:

To what extent has inflation affected the employment status of households in Nigeria?

To what extent has inflation affected the income level of households in Nigeria?

To what extent has inflation affected the purchasing power of households in Nigeria?

To what extent has inflation increased the level of poverty among households in Nigeria?

1.5 Research Hypotheses

H0: Inflation has no significant effect on the socioeconomic status of households in Nigeria.

Ha: Inflation has a significant effect on the socioeconomic status of households in Nigeria.

1.6 Significance of the Study

The study findings will assist the Nigerian government and policymakers in designing effective economic policies and interventions to mitigate the adverse effects of inflation in the country. NGOs and social activists will be able to advocate for policies that protect vulnerable populations from the adverse effects of inflation. Nevertheless, subsequent researchers will use it as a literature review. This means that other students who may decide to conduct studies in this area will have the opportunity to use this study as available literature that can be subjected to critical review. Invariably, the result of the study contributes immensely to the body of academic knowledge with regard to the effect of inflation on socioeconomic status of household in Nigeria.

1.7 Scope of the study   

The scope of this study is boarded on the examine effect of inflation on socioeconomic status of household in Nigeria. Empirically, this study will determine the extent inflation has affected the employment status, income level,  purchasing power of households, and extent inflation have increased the level of poverty among households.

Geographically, the study will be delimited to residents of Kaduna state.

1.8 Limitation of the study

In the course of carrying out this study, the researcher experienced some constraints, which included time constraints, financial constraints, language barriers, and the attitude of the respondents. In addition, there was the element of researcher bias. Here, the researcher possessed some biases that may have been reflected in the way the data was collected, the type of people interviewed or sampled, and how the data gathered was interpreted thereafter. The potential for all this to influence the findings and conclusions could not be downplayed. More so, the findings of this study are limited to the sample population in the study area, hence they may not be suitable for use in comparison to other schools, local governments, states, and other countries in the world.

 1.9 Definition of Terms

Inflation: the rate at which the general level of prices for goods and services rises, eroding purchasing power.

Socioeconomic: refers to the combination of social and economic factors. It encompasses the way in which an individual's social status (including education, occupation, and income) and economic conditions influence their overall quality of life and opportunities.

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