At the end of the month, you could decide to go and do monthly house shopping. So imagine yourself going to a supermarket with ₦10,000. And that same amount of money a few months ago could fill your basket with all your favorites like rice, eggs, cooking oil, and maybe even a treat or two. But now? That same ₦10,000 barely covers the basics.
That’s inflation at work.
Inflation happens when the prices of goods and services are rising over time, and as a result, the value or purchasing power of your money is shrinking. In other words, your money doesn’t go as far as it used to go before.
In this blog post, I will explain what inflation means and what you need to know about it.
What Causes Inflation?
There’s no single cause of inflation, but here are a few of the most common ones:
1. Currency Devaluation
When a country’s currency loses value against other major currencies (like the US dollar), the cost of imported goods goes up. Since many countries, including Nigeria, import fuel, raw materials, and machinery, a weaker local currency makes everything more expensive.
Think of it like this: If ₦1,000 used to buy you $2 worth of goods, but now it only gets you $1, you’ll need to spend twice as much to buy the same thing. And that extra cost trickles down to the final price you pay at the market.
2. Excessive Money Supply
When the government prints more money than the economy can support without increasing the production of goods and services. It leads to too much money chasing too few goods. This causes prices to go up.
Analogy: Imagine a small village market with 10 loaves of bread and 10 people, each with ₦100. Now, imagine each person suddenly has ₦500, but there are still only 10 loaves of bread. People are willing to pay more to get the bread, and sellers raise prices in response.
This kind of inflation is usually man-made and often tied to poor monetary policies.
3. Inflation Expectations
Sometimes, prices rise simply because people expect them to. If businesses believe that the cost of raw materials or labour will increase soon, they often raise their prices early just to stay ahead. Employees, expecting higher living costs, ask for higher wages. The cycle feeds itself.
In essence, fear of inflation can cause actual inflation. It becomes a self-fulfilling prophecy.
4. Rising Wages (Wage-Push Inflation)
When workers successfully demand higher wages, especially across an entire sector or country, companies usually pass those added labour costs onto customers in the form of higher prices. This is known as wage-push inflation.
Example: If a transport company has to pay drivers 30% more, it might increase fares or delivery fees to balance the books. Now, prices for goods that depend on transportation also rise.
While higher wages are good, they can create inflation if productivity doesn’t rise to match the increase in pay.
5. Supply Chain Disruptions
When something disrupts the smooth flow of goods, like a global pandemic, port congestion, fuel shortages, or conflict in a key region, it becomes harder and more expensive to get products where they need to go.
Real-life example: During the COVID-19 pandemic, factories shut down, shipping was delayed, and raw materials became scarce. That scarcity meant higher production costs and, eventually, higher prices at the store.
Even now, supply chain issues in one part of the world can cause price increases in places thousands of miles away.
How Does Inflation Affect You?
Inflation might sound like an “economic” term, but it shows up in your everyday life. Here’s how:
- Your buying power drops: You need more money to buy the same items.
- Savings lose value: If you keep cash under your pillow or in a low-interest savings account, inflation will quietly eat away at its worth.
- Cost of living increases: Transport, rent, food, healthcare everything starts feeling more expensive.
- Fixed incomes suffer: For retirees or salary earners without regular raises, inflation can stretch budgets uncomfortably thin.
Is Inflation Always a Bad Thing?
Not necessarily.
A little inflation (say, 2–3% annually) is actually considered healthy for a growing economy. It encourages spending and investing rather than hoarding cash. But when inflation becomes too high or too unpredictable, that’s when problems start.
What’s the Difference Between Normal Inflation and Hyperinflation?
Normal inflation is what we deal with regularly prices slowly rising over time. It’s manageable and often expected.
Hyperinflation, on the other hand, is when prices skyrocket uncontrollably in a short period. Imagine bread that cost ₦500 yesterday suddenly costing ₦5,000 next week. That’s economic chaos and it can destroy savings, wages, and business stability.
How Can You Protect Yourself from Inflation?
The key is to invest wisely and avoid letting your money just sit. Here are a few strategies:
- Invest in assets like stocks, real estate, or mutual funds they tend to grow over time.
- Diversify your portfolio so you’re not overly dependent on one income stream or market.
- Keep learning about the economy so you can spot trends and make smart money moves.
Conclusion
Inflation is like a slow leak in your wallet. It doesn’t scream, but over time, it weakens your buying power and makes everyday life more expensive. Understanding inflation helps you make smarter choices whether you’re saving, investing, or just trying to keep up with rising costs.
So, the next time someone says “prices have gone up,” you’ll know exactly what’s going on and more importantly, how to respond.
