Price Control Measure:
This involves the setting up of Price Control Board by the government which fixes maximum prices charged for certain commodities experiencing inflation. Experience, how- ever, has shown that this system bedeviled with a myriad of problems does not work. The Nigerian case is typical example. What usually results are hoarding, profiteering and black-marketing, thus negating the initial aims.
Wage Control or Wage Freeze:
Most of governments place freezes on wage increases as a meas- ure to combat inflation but this policy does not work or is ineffective since workers have deviced methods of making the government or employers of labour dance to their tune. These ways include go- slow, work-to-rule, industrial actions, etc. These are most often used in democratic nations/societies.
Monetary Policy:
This involves the use of traditional monetary instruments to reduce the quantity of money in circulation. These include increase in the Bank or Discount Rate, increase in the Liquidity ratio, use of open market operation – contractionary monetary policy in this case, sectoral allocation or special directives, etc., however, the experience in the developing world has shown that these traditional instruments of monetary policy have a lot of deficiencies hence their effectiveness.
Fiscal Policy:
A combination of increase in personal income tax and reduction in government expendi- ture may prove effective especially when inflation is demand-pull in nature. These reduce the purchas- ing power of consumers thus reducing demand and prices of commodities.
Total Ban on the importation of certain items : Especially when inflation is imported, the govern- ment is strongly tempted to place total ban on the importation of certain non-essential items. However, retaliation by other nations and political pressure lead to the lifting of the ban no sooner than it was placed hence the ineffectiveness of such a policy.
Increase in the Production of Goods and Services:
Increase in the production of goods and serv- ices is the most effective measure to inflation. Increase in the supply of products will naturally force prices down. In Nigeria, concrete efforts should be made to increase production of essential but scarce commodities.
Over-hauling of the entire Distribution Network:
Only genuine distributors should be appointed and any one found hoarding and profiteering should be prosecuted to serve as a deterrent to others. Students Assessment Exercise
- What are your suggestions for control of inflation in Nigeria today?
- Discuss three types of inflation in Nigeria and the methods of control of each type.
- Why have the efforts being made for some years proved unsuccessful in curbing inflationary problems in Nigeria?
- To what extent is a formal prices and incomes policy likely to control the rate of inflation? (v) For what reasons do government set to control inflation?
Conclusion
The tendency of prices to rise and the value of money to fall is known as inflation. One of the main aims of government is to control the rate of inflation because of its undesirable effect on the economy. For a full understanding of inflation, it is important to realise the relationship between the supply of money and the rate at which prices are rising for the supply of money is important consideration in the question of inflation. This leads many people to regard inflation as a condition of excess Aggregate Monetary Demand (AMD) over Aggregate Supply in conditions of full employment. The importance of this definition of inflation lies in the fact that it draws attention to Aggregate Monetary Demand and consequently to the supply of money.
While acknowledging the importance of the money supply to the inflationary process, it is useful to con- sider other powerful forces which make their contribution to rising prices. The standard distraction is be- tween “Cost-Push inflation” and “demand-pull” inflation. The names indicate the main causes of the particu- lar inflation although it is usual for one kind of inflation to lead to the other kind in a particularly unpleasant circle.
Cost-push inflation occurs when prices rise as a result of the costs of production increasing more rapidly than output. When cost inflation of this kind is widespread, it necessarily leads to demand inflation as the recipients of extra income want to increase their purchases. Once an inflationary atmosphere is established, the process is in danger of becoming not only self-perpetuating but self-accelerating.
While there is a minority view that a degree of inflation is a necessary stimulant to the economy slightly rising prices encouraging investment, the strenuous efforts of governments to restrain its pace suggest that it produces many undesirable side effects.
Summary
In the unit, we have successfully defined inflation and were able to recognise the different types of inflation, analyse the causes and effects of inflation. Reasonable suggestions on the various ways of controlling infla- tion was also reproduced.
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