Many of us hear about inflation – even in cases where it is rising – and merely brush off the phenomenon as something that has no direct bearing on our lives. Nothing could be further from the truth because a rise in inflation affects our pocketbooks.
The inflation rate for November 2021 eased a bit by 0, 2 percentage points to 8.6 % from 8.8%. If you look at the main contributors to inflation for that month though as an example, they were as follows: Transport at 4.4 percent, Housing, Water, Electricity, and Gas & Other Fuels at 1.4 percent and Food & Non-Alcoholic Beverages at 0.9 percent. A closer look at the nature of these contributors reveals that these are essential for day to day activities. As a matter of fact, many people across the length and breadth of this land, commute daily to and from work using either public or private transport. This is an economic activity that they are bound to undertake to fend for themselves and families. So come rain or shine, they have to be on the road every morning to go to work. And as a result of inflation, they now pay more for the same kilometres commuted. Business operators also have pass on the costs of transporting goods to the consumer.
Housing, Water, Electricity, and Gas & Other Fuels as another main contributor to inflation -or the general rise in prices- should be self-evident. In recent times, we have seen the power utility approach the energy regulator on more than one occasion to apply for an increase in the price -euphemistically called tariff- of electricity. Just as it is the case with transport, households – irrespective of income status – now pay more for the same amount of electricity as before. They don’t get to enjoy more “units”!
We should also not be surprised that this category of goods propelled the inflation rate significantly as per official statistics. We have to remember that last year alone, the economy experienced a deluge of fuel price increases. We had increases in February, March, July, October and December. And once again, for the same amount of money that you used to spend on your tank, you now get less fuel. And that is the very definition of inflation: your money is chasing fewer goods. It now buys less fuel, less electricity and less kilometers as before for transport.
And then there is food. The price of this essential commodity rose between October and November. Food inflation grew from 6.7 percent in October to 6.80 percent in November. So with the same budget as before, you now fill your trolley with few groceries. Once that happens, you are in the throes of inflation. You are now forced to spend more money on the same amount of goods as before just to feed your family.
Inflation is the enemy of not only ordinary consumers going about their lives but savers too. If it keeps rising it eats away at the returns that the bank offers on your savings. And sometimes people save for their retirement and do not expect their savings to lose value.
Even though our inflation rate is nowhere near the stratospheric highs of Venezuela or closer to home Zimbabwe, it needs to be low and stable. A stable inflation rate allows businesses and households to plan their investment properly.
Given that inflation is caused by governments and not ordinary people, it is time to review the notion of administered prices and import substitution which can become tools to win voter loyalty by keeping prices artificially low. By keeping fuel prices low for example, the tax payer now has to compensate oil companies for buying at market prices and having to sell at pump prices set by government. And governments still like talk about market failure. How about government failure.
