IT’S getting more expensive to be poor.
Over the past year, prices have risen more quickly for many of the things that low-income households spend a lot of their money on, such as food and utilities. As a result, these households are experiencing a higher rate of inflation than the public at large even as their wages have stagnated.
Essentially the driving force behind this has been the fact that over the past 12-13 months, inflation has doubled as figures released by the Namibia Statistics Agency (NSA) last week indicate that annual inflation stood at 7 percent at the end July 2016 compared to 6.7 percent recorded in June 2016, but came in higher than the 3.3 percent recorded in the prior year.
Indeed the growth in overall inflation was attributed to increase in food and non-alcoholic beverages and housing, water, electricity, gas and other fuels with a view that municipal tariff increases in early July 2016 had additionally contributed to the rise in inflation.
Since Namibia is highly integrated into the South African economy, Simonis and Storm Securities last week stated that inflation is driven by South Africa to a large extent, because a large percentage of goods consumed locally come from South Africa. This has led to Namibia importing most of South Africa’s inflation (6.3 percent). Higher inflation in Namibia has a negative effect on real returns, particularly when bond prices do not reset to take that into account.
Economists further still believe that the stronger Rand and the decline in South African white maize prices and low oil prices will offset major increases in other categories of inflation. They also do not rule out the effect of tariff increases and carbon emissions tax on inflation going forward and further reiterate their view that inflation will continue to rise but at a slower pace with forecast for NCPI at an average of 6.5 percent for 2016.
Past studies have found that the rate of inflation tends to be more volatile for the poor, largely because they have historically spent more of their income on basic goods, which tends to see bigger price swings than other goods. But over the long-term, low-income families’ rate of inflation tracks closely to the average household.
In conclusion it is important that we realise that the inflation rate is one of the central macroeconomic indicators in societies around the world. Prices are a critical variable in translating nominal income into welfare and, as such, consumer price indices are used internationally to compensate economic agents for losses in purchasing power over time. At the current rate of inflation, it is safe to say the poor will continue to get poorer.
Confidente. Lifting the Lid. Copyright © 2015