Surviving Inflation

The fact that the Nigerian economy is struggling is no longer news. Economic data is churned out daily, with inflation taking center stage.

Everyone is aware that inflation refers to rising costs. But what more do we need to know? How do we respond to inflation? And what follows? These are a few of the concerns people have.

I’ll start by claiming that inflation is not a problem but rather a sign of one. Inflation is a proxy for the economy’s health, much like body temperature does for human health. In simple terms, an increase in price merely indicates lower production. On a national level, it suggests that aggregate demand (what we consume) exceeds aggregate supply (what we produce).
On a personal level, we spend more per person or family than we make. Our total income growth must, therefore, keep up with or exceed the inflation rate to maintain our standard of living.

So what do we do?
First, we must analyze our spending, trim fat, and free up cash during an inflationary period. Unnecessary expenses should be rationalized and scaled back. Prioritize investments to produce decent returns to keep up with the inflation rate. While keeping up with inflation’s adjustments, the return may differ.

Second, people might need to take on more than one job, get a side hustle, pick up new skills, switch careers, or increase the range of goods and services offered. The family’s overall income must rise, whatever it takes. Both partners should think about working to earn money, and employers should try to improve wages and working conditions when they can.

Exactly what follows?
Inflation does not persist forever, which is a good thing. The demand will start to decline as people adjust and policymakers make macroeconomic changes, increasing household free cash flow and decreasing commodity prices. The cycle of inflation, disinflation, and deflation is a continuous one.

Therefore, how you efficiently alter your supply & demand curve (your income and spending) and how you can generate extra income streams that can keep up with or exceed the inflation rate will determine how you survive inflation.

Graph: courtesy worlddata.info