According to the World Bank, many countries in Africa are struggling to get a grip of their economy.
The problems facing most African countries is not different from what Nigeria, the most populous black nation on earth, is facing.
These problems include, but are not limited to poor governance, lack of infrastructure, currency devaluation and inflation among so many others
Inflation has been typically described as the overall increase in prices or the increase in the cost of living in a country.
Causes Of Inflation
There are many causes of inflation in the different economies of the world and that of Africa.
They include; increased cash in circulation, money devaluation, export, tax reduction, increase in public spending and a lot of other causes.
Monetary Devaluation
What this means is that there is too much money; be it Naira, Dollar or Yen, chasing too few goods.
This theory submits that the value of money is subject to the law of demand and supply. So, when there is too much supply of money, the value goes down.
When the value of money goes down, its purchasing power drops and things become relatively more expensive.
Increase In Public Spending
In any modern economy, government spending is an important element of the total spending. It is also an important determinant of aggregate demand.
Usually, in lesser developed economies, the government spending increases which invariably creates inflationary pressure on the economy.
Exports
In an economy, the total production must fulfill the domestic as well as foreign demand.
If it fails to meet these demands, then exports create inflation in the domestic economy.
Tax Reduction
While taxes are known to increase with time, sometimes, governments reduce taxes to gain popularity among people.
The people are happy because they have more money in their hands.
However, if the rate of production does not increase with a corresponding rate, then the excess cash in hand leads to inflation.
The Imposition Of Indirect Taxes
Taxes are the primary source of revenue for a government. Sometimes, governments impose indirect taxes like excise duty, VAT and others on businesses.
As these indirect taxes increase the total cost for the manufacturers and/or sellers, they increase the price of the product to have a minimal impact on their profits.
Ways To Tame InflationÂ
Just as there are many causes of inflation, there are also many ways to tackle inflation in an economy.
- Government can tame inflation by controlling monetary supply into the system, when policies that can control too much money in circulation is adopted, inflation will reduce.
- The Central bank can take additional rate hike measures to reduce inflation within acceptable limits.
- Government should borrow for capital projects instead of doing so for expenditure. Borrowing is good if used to develop infrastructure and build good road networks that will facilitate easy transportation of goods and services for revenue generation.
Higher monetary policy interest rates decrease the economy’s demand, resulting in lower economic growth and lower inflation.
Design robust policies to boost the economy’s productivity and efficiency, placing downward pressure on long-term costs.
Another option available, though it is scarcely used is to regulate price limits and help alleviate inflationary pressures by attempting to regulate wages.
