CHAPTER ONE INTRODUCTION 1.1 BACKGROUND OF THE STUDY

The word inflation in the market economics of the world threatens both the developing and developed countries economy because of it undesirable effect. Even though some evidence suggests that moderate inflation helps in economic growth, the overall weight of evidence so far clearly indicated that inflation is inimical to growth. According to Dubon (2003) “inflation is define as a sustained rise in general price level’’ he further revealed that this phenomenon occurs when the aggregate demand in normal value is greater than the real productive capacity of the economic. The formulation and implementation of monetary policy by the central bank of Nigeria (CBN) was aimed at maintaining price stability which is consistent with the achievement of sustainable economic growth.

The monetary authorities strives to achieve the government overall inflation objective through impactive monetary management, which entails setting intermediate and operating targets in the assumed targets for gross domestic product (GDP) growth inflation rate and balance of payment, Adamson (2001) maintenance price stability continuous to be paramount objective of monetary policy for most countries in the world today. “The tendency of risking and a full in the value of money is known as inflation’’ Dubon (2013). The emphasis given to price stability in conduct of monetary policy is with a view to promoting sustainable growth and development as well as strength thinning amongst others (ESSIEN 2005). The central Bank of Nigeria (CBN) employs the monetary targeting frame work in the conduct of its policy. This is base on the assumption of a stable and predictable relationship between money supply and inflation. Although several people, producers, consumer’s professional non-professionals trade union lists, workers and the likes, talks frequently about inflation particularly if the issues are becoming stressing.

According to Friedman (1968) in DUBON (2013) inflation is seen basically as a monetary phenomenon which is caused by increases in the quantity of money supply. They further stressed that although inflation is a monetary phenomenon. It is caused by both monetary and non-monetary factors.

The inflation pressure was further provoke by high demand for imports of both intermediate inputs and consumers goods due to over valuation of the naira which made imports relatively cheaper than locally manufactured goods in this case, the impediment to development may be referred to as cost.

Economic Theory, however postulates that for the profit to the majored cost should be minimised. One of the main costs is inflation, which has eaten deep into the nations as fiscal discipline was restored in the second half of 1999, the pressure on the exchange rate and domestic price moderated significantly. The economic faced renewed pressures and some uncertainty toward the end of the tear as the central bank of Nigeria (CBN) grader-ally relaxed its tight monetary policy.

1.2 STATEMENT OF THE PROBLEM

High inflation is known to have many adverse impact, it imposes welfare cost of the society, impedes efficient resources allocation by obscuring the significant role of relative price change, discamage savings and investment by creating uncertainly about further price, inhabit financial development by making intermediate on more costly, hits the poor excessively, because they do not hold financial asset that provide a hedge against inflation and reduces a country international competitiveness by making its exports relatively more expensive, this impacting negatively on the balance of payments and perhaps more importantly reduces long-term economic growth. According to piano (2007) over-all business and house hold are through to perform poorly in period of high unpredictable inflation. Most policy makers however, agree that they should not allow inflation to fall below zero because the costs of deflation are through to be high, central bank of Nigeria (CBN) (2007). Even though some evidence suggest that moderate inflation helps in economic growth, the over-all weight of evidence so far clearly indicate that inflation is distress to growth, it is therefore imperative to conduct a research work on the impact of inflation on Nigeria economic growth which is the main objective of this research work.

1.3 OBJECTIVE OF THE STUDY

The main objective of the study is to examine inflation in developing countries with the view of ascertaining the effect of inflation on economic growth.

The specific objective of this study is to:

1. Examine the trend of inflation in Nigeria over the years.
2. To investigate the impact of inflation on the economic growth in Nigeria.
3. To Explore the effect of inflation on capital formation in Nigeria.
4. To Examine the influence of inflation on peoples consumption.
5. To suggest visible solutions to the problems of inflation in the country.

1.4 SIGNIFICANCE OF THE STUDY

This study would investigate the impact of inflation on macroeconomics variables such as productivity, investment and consumption.

1. It would have a direct effect on the efficiency and effectiveness of the use of the policy instruments in the stimulate production and investment.
2. It would reveal the remote and immediate causes of inflation in Nigeria with due consideration to theoretical foundations.
3. It would also provide an explanation for Nigeria’s stunted growth.

1.5 STATEMENT OF HYPOTHESIS

The following are research hypothesis.

H0: there is no significant relationship between inflation and economic growth.

H1: there is a significant relationship between inflation and economic growth.

1.6   SCOPE AND LIMITATION OF THE STUDY

This study limit scope to the effect of inflation on             economic grow in Nigeria. However the imperia investigation of inflation rates and the gloss domestic product at current price in Nigeria, in the course of the study, the researcher encountered some problems which range from availability of relevant data, this play and also the attitude of respondent also affected the research in many ways. Time and fund also are included in the limiting factors to the collection of adequate data. There was not enough time to fraud to other financial institution and other federal and state ministries of finance in order to get adequate information needed. Then researcher encountered financial problem, due to transportation. Cost and expenditure in cured in course of gathering and analysis of data.

1.7   ORGANIZATION OF THE STUDY

This study is divided into five chapters the study commence with an introductory chapter which provides the insight of what the research is all about of the over view, then the problem that prompted the study objective of the study, significance of the study, scope and limitation of the study, organisation of the study, chapter two is concern with the review of related interactive with emphasis on the impact of inflations on Nigeria economic growth. Here various source of material are used for the design of the study research method and procedures. Chapter three is the research methodology, which discussed the various steps used in carrying out the research through statistical methods, research design, population of the study, sampling technique, source of data collection and method of analysis chapter four present the data of data collected and also analysis three fifth chapter contains the summary, conclusion and recommendation base on the outcomes data analysis in chapter four following the final chapter, the reference