By: LLOYD ONAGHINON
We discussed GDP last time and learnt a number of lessons. As at first quarter real GDP was – 0.36 from 2.11 per cent growth (http://www. nigerianstat.gov.ng/report/398). In other words we had a negative growth on a real term basis. Real GDP takes into cognisance the impact of inflation. Inflation is the general increase in prices without a corresponding increase in production level. In other words, too much money chasing too few goods.
There are different types of inflation and we can always address this when we chat on the website. However one form of inflation Nigeria battles with is imported inflation due to the fact that we consume a lot of imported goods, industrial or nonindustrial. Our inability to produce locally at primary, secondary and tertiary production levels hugely impacts us negatively.
For everyone seeking to grow their wealth now, we must consider the impact of inflation. Take for example a man that earns N100 and spends all the monies on goods, for consumption in a year. Should he want to buy same products and is told that the product is now higher in cost i.e. it is now 9 per cent higher, his N100 will no longer be adequate. For him to have been able to generate the same satisfaction from the product as he did one year ago, he would have needed to earn N109 the following year as that is the minimum to be on the same level as the previous year. That 9 per cent increase is the inflationary impact
- Inflation is a cost.
- Inflation hurts us Inflation is therefore supposed to be a motivator for us to use as a benchmark in growing our capacity to retain wealth year on year.
- Inflation helps to moderate our expectations and helps to determine the viability of businesses. Inflation is no respecter of persons.
It therefore means that when we are growing our revenues and indeed profits, we must ensure that the growth year on year is higher than the inflation amount, which is the only way we can truly have grown our wealth. Many people do not consider this and it militates against their true ability to grow their wealth. Same thing with salary earners. We must ensure that even if our employers do not have a cost of living (inflation) adjustment incorporated in our salaries year on year, we are able to save from our existing salaries and invest that saved amount in a manner that the growth in returns covers the anticipated inflation figures.
According to FSDH and Standard Bank research, inflation year on year is expected to rise to 13.7 per cent. This means that if you earned N1m last year, to be on the same situation, you would need to have earned N1.14m if not you have not performed on a real term basis.
Inflation is therefore a cost to everyone and our job is to conquer inflation every time at the minimum. Do not bother about the different types or levels of inflation. Just earn higher and you are on your way to truly achieve financial independence. In the next sets of contribution, we will discuss the power of compounding for us to understand the impact of growing our revenues and then profits, savings and investment and doing same over and above the inflation rate at the minimum. I hope we engage on any questions or clarifications.