CHAPTER ONE
INTRODUCTION
BACKGROUND OF THE STUDY
Inflation is a word that most people hear these days and virtually nobody would like to
experience or come in contact with. Unfortunately it has come to stay with us. Clautier and
Underdown (2001) described it as what hits the consumer’s pocket by eroding the purchasing
power of the currency and sometimes acts as hidden tax. It reduces nation competitiveness in
world markets and can have a general debilitating effect on almost all type of economic
activities. When one thinks of inflation what comes to mind is the dynamic situation of persistent
increase in the price level which results in the diminution of real purchasing power of naira at
your disposal at any time.
Inflation, be it creeping, cost push, wage push or profit push is a condition of unrelenting price
spiral. It has been generally described as a situation of rising prices arising from too much money
chasing too few goods and always results when the aggregate demand exceeds the aggregate
supply of goods and services. It has the net effect of reducing the purchasing power of the
monetary unit. When this reduction in the purchasing power of money is gradual as it was the
case in the early 60s, the recipient of fixed income is not worried. However, when change in
price is a run-away (hyper) inflation as has been experienced in Nigeria since late 70’s the entire
economic system will be at the brink of collapse (Emekekwe, 2008).
However, inflation is not completely dreadful. A certain level of inflation is desirable in order to
ensure sustainable economic growth. Beyond that level, it becomes a hydra –headed monster that
has baffled monetary economics over the years, (Emekekwuse, 2008). At the undesirable level,
inflation greatly affects financial decisions thereby constituting big source of uncertainty in the
economic world.
STATEMENT OF PROBLEM
The world is in the grip of soaring inflation. The inflation if it crosses the single digit is an index
of a weak economy. Inflation can prompt trade unions to demand higher wages, to keep up with
consumers prices. Rising wages in turn can help fuel inflation.
Inflation has negative effects, because it reduces the value of money, resulting in uncertainty of
the value of gains and losses of borrowers, lenders, and buyers and sellers. The increasing
uncertainty which inflation brings discourages saving and investment. It also has serious effect
on reported profits because of high increase in the devaluation of money. The value of the
reported profit today might be less tomorrow because of inflation and the decision made today
on that reported profit may be misleading tomorrow because of inflation.
These problems arise because the financial reporting concept is based on age old concepts which
for long have ignored the presence of inflation and its implication for decision making both by
management and external users of reported profit. Overstated profits are measured in monetary
terms; rising prices will induce external users to make investment decision without appreciating
the consequences of the reduced value of their investment
How to get complete project materials
Step 1: make payment of N3000 to any of the bank below
NAME: JOLLERTEX GLOBAL SERVICES
BANK: WEMA BANK PLC
ACCT NO: 0124522105
AMOUNT: N3000
NAME: TITUS AYANI SOLA
BANK: FIRST BANK
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