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1.1 BACKGROUND OF THE STUDY Inflation as it exists in Nigeria is a national scourge which has been plague in the economy since after the end of Nigeria civil war in 1970 .Immediately after the sharply and have remained high since then .Unfortunately , Nigeria inflationary trend has defied all known economic thieves especially not been religiously executed. Inflation, or rising prices, as we now know it began in Nigeria during and after the Nigeria civil war (that is, from 1965 to 1970). Before war, a long big of 500 cups of rice was #43.00 immediately after the war in 1970. The price fell almost to its pre-war level seven years later in 1977. Between 1973 and 1975, the price of a packet of sugar rose from 20k, Omo soap detergent from 80k to 35k, and Bournvita beverage from 80k to 1.35k. Since 1978 prices have been rising steadily and have become the concern of the government and the Nigeria people War or military conflict creates a favourable condition for inflation. This was clearly the case during the Nigeria civil war. Secessionist Biafra in particular, faced hyperinflation. Everything was scarce relative to the demand. Arable land had been time be the federal drops. The people depended on relief foodstuffs form abroad. The federal Nigeria government placed an embargo on anything coming to secessionist Baifra. The Biafra government printed and circulated paper currency notes. This fuddled the inflation further. A cup of salt cost N16 in the Biafra enclave as against its pre-war price of 2k. People referred holding money in foreign currency. The US dollar was exchanged from N60 Biafran notes as against its pre-war rate of 67k. it was jokingly said that some people in Biafran made pillows and mattresses with their worthless Biafra notes. On the federal side, huge sums of money were pumped into the economy to prosecute the war- workers were withdrawn from the field and elsewhere, and sent to the war front occasioning storages in most goods and services. All those actions meant more money but less goods. There was an inevitable crash at the end of the civil war and many people were ruined. The type of inflation that existed during the civil war is a good example of the galloping inflation or hyperinflation. As we have pointed out, inflation is inevitable during a war. What is most disturbing is past-war inflation. Excepts for a very short period in 1977, inflation has been persisted in Nigeria since the end of the civil war. This has been a source of concern to the people and government of Nigeria because it effects the cost of living and the standard of living of the people. Who should take the blame for Nigeria’s increasing inflation. Some blame the traders, retailers, hoarders, black marketers, profiteers and other business people. they are accused of being unpatriotic and unscrupulous for unnecessarily raising the price of commodities. Are they really responsible for it? The truth is that the people who are accused are often not the real cause of the inflation. They are businessmen and are in business to make profit. They are only taking advantage of the opportunity given to them by market forces. The second factors in Nigeria’s inflationary trend in monetary. Price have been rising because many people including the government have been having very much money to spend and have been spending it. Speaking about ‘Monetary credit and price level.’ In the 1983 federal budget presentation, President Shehu Shagari stated as follows: The levels of money supply have been rising and total credit to the domestic economy by the banking system rise by about 50%. Between 1980 and 1981. The increase in the credit to the economy was largely accounted for by the phenomenal increase in the credit to the public sector, which rose by about 94%. The reason for this is that the government was left with no alternative but to resort to deficit financial since the petroleum sector, which remained the main source of public revenue started to encounter problems in 1981. The national consumer price index also rose by 20.8%. The Federal Government revenue dropped by about 21.4%. Although revenue from customs and exercise duty rose marginally, the financial position of both the federal and state governments has not been satisfactory. They resorted to deficit financing. The federal government did this by raising additional external loans, and internal loans through treasury bills or certificates and development loans stocks. The state governments also borrowed externally and internally to maintain their services. By 1986 inflation in Nigeria had completely gone out of hand. As already noted, the price of a medium sized packet of soap detergent rose from 80k in 1985 to N3.80 in 1986. Similarly, a bag of rice rose in price from N43 in 1970 to N300 in 1986. The inflationary trend worsened when the government announced in August 1986, its intention to operate a secondary foreign exchange markets (SFEM). Speculations that this was a signal for devaluing the naira, with consequent increase in general prices, further sky-rocketed the prices of commodities and thus, worsened the inflationary situation in the country. In the face of a persistent inflation and fully aware of the danger inherent in uncontrolled or rising prices. By 1987 inflation rising prices goods and services was almost normal but as from 1988 – 1989, it was so high and uncontrollable, and was 7.5%. the budget in 1990 was deficit, which was N22 billion and insufficient to the expenditure or elimination of inflation. From 1992, the inflation rate was moving so rapidly and never control till 1996 when it was controlled, but in 1991 much talked about increase in income but never implemented minimum wage. In 1994 much advertised increase in income but helpless Abacha promised. Also 1999 Abdusalaami’s hope rising salary increase in income. 2000 president Obasanjo’s living wage and 2002 expected 25%. Salary increase in income, followed by increasement in fuel price and other inflation in price of goods and services in 2002/2003 and 2004. The only time inflationary rate dropped to an appreciable level in Nigeria economic development was in 1972 when 2-7% rate was officially recorded. This was short living or lived as the rate rose to 33.9% in 1975.

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