How to control Inflation And Deflation in Economics in Nigeria

Discover practical ways on How to control Inflation And Deflation in Economics in Nigeria. Stay ahead of the curve and safeguard your finances with these strategies. Learn about the causes and solutions of inflation in Nigeria.

In the last nine years, the value of the Nigerian naira has dropped by 162%. Therefore, in 2014, a salary of $100,000 ($235) was worth more than $250,000 ($587) in 2022. Knowing how to fight inflation in Nigeria is crucial in light of this fact.

To what end is the Nigerian naira losing value?

When the price of goods and services generally rises, consumers’ buying power decreases; this is inflation, and it is a significant reason why currencies lose value over time. That means you’ll need to allocate 30k ($70.51) to groceries, up from 20k ($47), if you want to maintain the same standard of living.

Extra money in the economy leads to price increases, or inflation. It is essential for nations to create more in order to earn more, since this occurs when governments print more money to make up for not producing enough income or borrowing too much.

Dr. Olalekan Aworinde, a senior lecturer in economics at Nigeria’s Pan Atlantic University in Lagos, told Punch in February 2022 that the naira is losing value due to low demand. Since “we do not manufacture anything that would make people desire the Naira,” the currency is not in high demand.

The World Bank estimates that manufacturing contributed less than 8% to Nigeria’s GDP in 2016, down from 20% in 1981. Despite having increased to 12% since 2014 and showing further growth in 2022, it is still much lower than historical norms.

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However, interest rate differentials, weak economic fundamentals, uncertainty, and political instability may all lead to currency depreciation as well. Examples of countries suffering from high inflation rates due to debt and poor economic production include Zimbabwe.

Knowing how to combat inflation in Nigeria is becoming more vital as the economic situation for Nigerians seems to be worsening daily.

Inflation in Nigeria reached an annual rate of 18.60% in June 2022, according to data from the country’s National Bureau of Statistics (NBS). That’s a 0.84 percentage point increase above last year’s inflation rate.

However, the rate of inflation seen from month to month is larger. As of June 2022, the annual rate of inflation has increased to 1.82% from 1.7% in May of that year. Shoppers complaining about having to dig deeper into their wallets to pay for previously costly goods attest to the veracity of these statistics.

To thrive in Nigeria, you need to know how to protect your hard-earned money from the ravages of inflation, especially if you are paid or save in naira. Technology has made it simpler to protect oneself against inflation.

Knowing how to combat inflation in Nigeria is perhaps much more important if you plan on saving money in naira. A 162% depreciation rate means that if you saved $100,000 year from 2014 until today, you would be down $20,000 ($47).

How Can Inflation be Controlled in Nigeria?

From 1960 through 2021, the average inflation rate of the Naira is estimated to be 16.1% by World Data.

Trivia: ₦100 in 196is equal to $1,332 and would be equivalent to 567k ($1,100), a depreciation of 566,990% in 62 years, based on today’s prices.

Using the average inflation rate from 1960 through 2021, we should expect any savings or investments to earn at least 16% each year, or 1.8% per month.

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With a 10% interest rate, your savings of ₦100,000 after two years would grow to ₦220,000 ($517). However, with an annual inflation rate of 16%, you have lost ₦32K ($75.21) on your ₦200k ($470), or ₦16k ($37) a year. With 10% interest, your savings would decrease to ₦188k ($441), or around ₦12k ($18.20).

If you want to avoid losing money to inflation in Nigeria, consider these steps:

Save and Invest in High Returns Apps

The only way to keep up with inflation is to save and invest in assets that provide high returns. If you’re looking for a better interest rate than the typical bank offers (1.2%), you may want to check out a fintech app.

  • Apps like PiggyVest are becoming more common. Over 3 million people have used it since its 2016 debut. The platform promises a return of 5% to 15% per year on your accumulated funds. The Investify investing tool boasts a potential 25% return on capital.
  • Cowrywise facilitates effortless savings with better returns than traditional banking institutions. Rates on savings accounts range from 6.15% to 9.15%.
  • To its customers, Carbon, a digital bank established in 2012, also provides savings plans with competitive annual percentage rates. If you lock away 50,000 ($117) or more, you may earn up to 15.5% interest with the Cash Vault function.
  • Automated savings of up to 15% per year are also available with Crowdyvest.

Several other places to invest your money include:

  • Rates on KoloPay might reach 10%.
  • An interest rate of 10%-15% is available at SumoTrust.

Acquire Shares in Companies Based Outside Nigeria

If you wanted to invest in publicly listed worldwide firms like Tesla or Netflix before the introduction of investment applications, the hassle you would have to go through would have likely outweighed the profits. In any case, these applications have made it feasible to invest in businesses without leaving the house.

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As an interesting side note, the aforementioned platforms for saving money also provide access to investing opportunities, such as mutual funds offering competitive returns on capital.

NOTE: Keep in mind that investment has its own set of potential drawbacks. Consider your tolerance for risk while making your decision.

  • Bamboo: A financial technology software that facilitates micro-investments, allowing those with lower incomes to participate in the stock markets of both developed and developing countries. The rate of return on an investment in stocks is not guaranteed and instead relies on the investor’s skill. There is also the option to invest in a fixed-income dollar account that may earn you up to 8% per year via the site. Examples of other investing websites are:
  • Risevest: Much like Bamboo, Risevest provides access to the American stock market. Interestingly, it also has a function that enables investing in real estate on a fractional basis.
  • Convert your funds to safer currencies like the dollar.
  • One of the greatest and simplest strategies to control of inflation in Nigeria is to save in foreign currencies such as the dollar. Several of the aforementioned investment vehicles also include currency savings options.

Cryptocurrency Investments are a good idea

One of the riskiest ways to put money to work is in cryptocurrencies. On favorable days, they provide very high returns in a relatively short period of time. However, the value of your possessions might rapidly decrease on bad days.

Investing in cryptocurrencies is dangerous because of their volatility. Stablecoins are an alternative to cryptocurrencies if you are uncomfortable with the inherent volatility of cryptocurrencies.

Stablecoins are cryptocurrencies whose value is pegged to that of a fiat currency, such as the US dollar or the Euro. Stablecoins have been known to lose value in the past, and this is something to keep in mind. Thus, it is crucial to investigate which stablecoins are the least volatile.

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