The Effect of Inflation on Consumer Purchasing Power in Nigeria (2005–2024)

Chapter One

1.1 Background of the Study
Inflation has remained one of the most pressing economic problems in Nigeria. It affects both individuals and businesses in profound ways. Moreover, inflation reduces the purchasing power of consumers and weakens overall welfare. When prices rise faster than wages, households struggle to maintain their standard of living (Adebayo, 2021).

In Nigeria, inflation has shown persistent upward movement. Food prices, transportation costs, and rent have continued to increase sharply. Furthermore, exchange rate depreciation and supply chain disruptions have made imported goods more expensive. As a result, families spend more on basic needs while saving less for future investments.

In addition, inflation influences other macroeconomic indicators. It affects interest rates, reduces the real value of income, and discourages both savings and investment. Many firms face higher costs of production, which they pass on to consumers through increased prices. Consequently, this cycle of rising costs and weak purchasing power creates economic instability.

Over time, the government and the Central Bank have introduced various monetary policies to control inflation. These include tightening money supply, increasing interest rates, and stabilizing the exchange rate. However, the results have been inconsistent. Therefore, understanding how inflation erodes purchasing power will help policymakers adopt more effective economic strategies.

1.2 Statement of the Problem
Despite numerous efforts to control inflation, prices of essential goods remain high. Wages have not kept pace with these rising costs. Moreover, the declining purchasing power continues to push more Nigerians below the poverty line. This persistent inflation threatens living standards and weakens consumer confidence.

1.3 Objectives of the Study
The main objective of this study is to examine the effect of inflation on consumer purchasing power in Nigeria.
Specific objectives include:

1. To analyze the trend of inflation in Nigeria between 2005 and 2024.

2. To determine the relationship between inflation and real income levels.

3. To assess the impact of inflation on household consumption behavior.

1.4 Research Questions

1. What has been the trend of inflation in Nigeria from 2005 to 2024?

2. How does inflation affect real income and purchasing power?

3. In what ways does inflation influence consumer spending patterns?

1.5 Significance of the Study
This study is useful for policymakers, researchers, and households. It provides a better understanding of how inflation shapes consumption and welfare. Moreover, the findings can guide monetary authorities in developing policies that maintain price stability.

1.6 Scope of the Study
The study covers the period between 2005 and 2024 in Nigeria. It focuses on inflation, consumer income, and expenditure trends.

1.7 Definition of Terms

• Inflation: The continuous increase in general prices over time.

• Purchasing Power: The quantity of goods and services that money can buy.

• Real Income: The income of individuals adjusted for inflation.