I have been hearing if they increase minimum wage, it will increase inflation. Will it really increase inflation. As at march, the inflation rate in Nigeria is over 30 percent. This rate is high already. So, how will the increase of minimum wage increase inflation. Maybe there is something am not seeing. So let discuss. Will Increase in minimum wage increase inflation

The short answer is YES.

Long answer:

There are 2 major types of inflation in economics:

1. Cost-Push Inflation: when the cost of producing goods and services increases and the producers PASS the increases to the final consumers in the form of HIGHER prices.

This is the one that is currently DECIMATING Nigeria. For instance, farmers go to their farms at the cost of losing their lives, their wives and kids.

If they don't lose those, a LARGE chunk of their crops get destroyed by criminal herdsman and their cattles.

A farmer could plant on say 5 plots of land and only harvest crops from 3 plots while the rest get destroyed.

Since they don't want to go bankrupt, they give the market value of the 5-plot to a 3-plot harvest.

So customers end up paying MORE for LESS. Say hello to inflation.

This type of inflation is usually OVERLOOKED and disregarded when talking about inflation. That's why nobody is talking about fixing the security issues that cause this in Nigeria.

Which brings us to the next kind of inflation.

2. Demand-Pull Inflation: is the popular kind of inflation. It's the one everybody knows as inflation.

It's when there is an increase in consumers' purchasing power (e.g increase in minimum wage) that leads to an increase in demand for goods and services. But for some reasons, supply cannot keep up with demand.

End result is TOO MUCH money chasing TOO FEW goods. So people will pay MORE money to get the same quantity of goods or even for lesser quantities. Say hello to inflation.

This is the one that an increase in minimum wage compounds.

It gets WORSE because the 2 types of inflation are about to go nuclear at the same time. MORE money will enter the economy while NOTHING is being done to address the supply issue.

There will be nowhere for the additional money to go. It'll just keep floating around in the economy until inflation starts mopping it up.

How much is the minimum wage? How many are the Nigerian workers? What is their average age?

These questions will help you know the spending phycology of the Nigerian workforce. Which will help you forecast the effect of their purchasing power on the economy.

It will help curb inflation