Inflation is a very difficult topic to understand, especially what causes it When I did economics in secondary school my teacher taught me inflation is "the general rise in prices of goods and services" ok However when I travel to my village in Ohafia during Christmas, the price of everything has gone up, is that inflation? Well not exactly. The population in my village goes up 10x in the month of December as "ndi oyibo based" return home.

 Thus there is competition for every bar of soap and goat meat (yum) making it's price rise just like an auction However in January prices "crash" as there is less competition for the bars of soap and goat meat So what happened? Did prices in my village rise? Yes Was that inflation? Welllllll Milton Friedman said all inflation is monetary, so was this inflation caused by the government printing more money that allowed the residents of Ohafia spend more? Well no So what happened in Ohafia in December? Two things

 1. Cash in circulation increased

 2. Supply of goat stayed same It's the stagnant supply that caused the price of goat to rise (inflation), NOT the new cash. Yeah really I give you another scenario In November, Americans celebrate Thanksgiving. As practice they eat Turkeys.

 I have noticed that the price of turkey does not spike in the US like how price of ram spikes in Nigeria during Sallah So why do Turkey prices not spike? Well the American retail system can supply any amount of Turkey at the lowest price to any willing buyer, in other words, demand for Turkey rises during Thanksgiving but supply of Turkey also rises, thus there is no price hike or aka inflation Thus back to beautiful Ohafia, the inflation is December is cured not by the Chief of Ohafia asking all residents to buy only a goat a week (CBN Capital Controls) but by simply having more goat meat prestocked in cold rooms...(PHCN says hi) Same for Nigeria, inflation is measured in Nigeria by looking at the rise and fall in a basket of goods and services.

 That basket is called the CPI or Consumer Price Index. That Nigerian basket is made up 51% of food. Thus if food prices rises, Nigeria inflation rises.

Thus how is inflation reduced?

1. Reduce amount of cash in circulation  2. Increase amount of "goats" in circulation. Let's do both 1. If the CBN takes away ALL the cash in circulation today, will the price of goat fall in Ohafia? Well no.People will simply barter palmwine for goat meat, so instead of 2 kegs of palmwine, a goat will cost 4 kegs of palmwine, prices still going up. 2. Supply of Goat increase. If there are more supply of goat, then prices can't rise, because if you hike your price, you lose sales to competition. So to fight inflation is to look at the causative factors If Nigeria raises MPR (Monetary Policy Rate) to 100% and CRR to 100% inflation will not fall. Demand will fall but not inflation Why? The causative factor of inflation in Nigeria today is low supply of food, not too much cash chasing few goats Last line, the US from 2007 under Quantitative Easing printed trillions and trillion of $, inflation in America did NOT go up significantly (topic for another day )