CHAPTER ONE
INTRODUCTION:
1.1 BACKGROUND OF THE STUDY.
The Nigerian economy is a middle income economy emerging market with well developed financial, legal, communication, transported entertainment sectors. It is ranked 31st in the world in terms of gross domestic product (GDP)as 2009 and its emergent through currently under performing manufacturing sectors is the second largest on the continent, for the west African region scholars have characterized the Nigerian economy to be associated with a high cost of living putting it in words,(EKAN 1998)states that Nigerian economy is characterized by high cost of living which is resultant effect of the persistent increase in the general price level in the economy. In an effect to solve the problem of low standard of living, government expenditure has been on the continual increased which is partially caused by trade unions agitations and partly by continual increase in prices of goods and services in the product and factors markets in the product.
Since the independence the country’s recurrent expenditure has been on the increase in 1970 total recurrent expenditure stood at two thousand seven hundred and thirty four naira, ninety kobo in 1980 when the economy was on a persistent growth our recurrent expenditure stood at four thousand eight hundred and twenty kobo in 1986 when SAP (structural adjustment programme) was introduced it.
Stood at seven thousand, six hundred and ninety nine kobo. The increase in the country’s recurrent expenditure was necessitated by the need to create employment and increase money supply to match the output level. (NBS, 2009).
However, the purchasing power of the average Nigerian has been reducing because of the increase in price level in the economy. In an attempt to solve this problem, various perspective and annual plans have been formulated and implemented. Examples are the vision 2020, vision 2010, and Yaradua’s 7 points agenda, Millennium goals and 2013 budget by Goodluck Jonathan.
The problem of inflation is a national nightmare to economic growth and development. It should be noted that it cannot be eliminated absolutely. In an actual sense, inflation rate can only be reduced to bearable limit. It should also be noted that inflation is not faced by less developed countries alone but the Western countries are also facing the problem.
For Nigeria, as the general price level is on the increase so is the recurrent expenditure which has created the inflationary gap in the economy (WAHAB 2004).This research is investigating the impact of salary increase on inflation in Nigeria.