By Babajide Komolafe

In the last edition, we said your wealth building efforts must be inflation sensitive and guided. How? You must recognise the reality and inevitability of inflation especially in Nigeria.
Nigeria is an inflation prone economy for various reasons. We depend on imported goods for almost everything and as a result, demand for dollars is very high. But, about 80 per cent of our dollar income (supply) comes from export of one commodity, namely crude oil.

Thus, the price of crude oil and quantity we produce largely determines dollar supply. Anything that negatively affects the dollar income from crude oil largely affects the exchange rate (price of dollar) hence how much Naira we pay for imported goods.
This largely explains the persistent increase in exchange rate in Nigeria, from below N100/$ in 1999 to N1,350/$ today. The impact of the exchange rate rise is reflected in the persistent upward pressure in prices of goods and services over this period.
There are other factors behind the persistent increase in prices of goods and services in Nigeria, these include, poor power supply, impact of insecurity on food and livestock production, deteriorating road conditions and others. But the major cause is the exchange rate or Naira depreciation effect of the import dependent culture of the economy.
The inflation rate is presently trending downward. But the economy is still prone to inflation. One or two global crises and poor response from the government can still trigger another bout of high double digit inflation rate. This is the reality you must always recognise in your wealth building decisions and be guided accordingly. You must factor into your buying and investment decisions the fact that prices will go up and money will lose value.
Now let’s consider some practical ways to reduce the impact of inflation on your wealth building efforts.
When buying household equipment, buy what will last. Quality cost but it delivers long term value. For example, there are grades of ceiling fans in the market. The price of the lower grades ranges from N25,000 to N40,000. The price of the higher grades is from N90,000 and above. However the higher grades can last for more than 10 years while the lower grade could barely last for more than three to five years. The same goes for items like Deep Freezers and others. Given the fact that prices almost double in Nigeria every five years, the amount you spend to buy and replace a low grade item may be as high as four times the amount you spend to purchase one high grade item. This increases the impact of high inflation on your ability to save.