THE rising cost of living will continue to strain the poor and has become an unbearable burden, increasingly so over the past year, as 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.
Essentially, these households are experiencing a higher rate of inflation as their wages have stagnated.
To their detriment, the Namibia Statistics Agency (NSA) released inflation statistics for October 2016 recently and the annual inflation rate rose significantly to 7.3 percent at the end of October 2016 compared to 3.4 percent recorded in the prior year.
Indeed, the difference in the rate of inflation between income groups is too small to matter much in the short-term, adding just a few dollars to the average family’s monthly bills.
But the longer that low-income families continue to experience faster price increases, the bigger the effect will be, quickly adding up to hundreds of dollars a year in extra costs for the households least able to afford it.
This trend is unusual. 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.
Poverty and inequality are two important characteristics of the socioeconomic context in post-colonial Namibia.
Rooted in widespread unemployment, particularly amongst those with lower educational attainment, and inequalities in access to quality education, Namibia’s level of income inequality is amongst the highest in the world, while millions continue to live in poverty almost 26 years after the country’s democratic transition. While many factors combine to determine the income level and poverty status of a household, including the presence of a resident income-earner, receipt of remittances and access to income from social grants, the prices faced by households are central in translating nominal income into specific utility levels. Consequently, price changes over time will impact, positively or negatively, on welfare and are therefore critical to our understanding of households’ welfare.
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, unfortunately the poorer will continue to get poorer.
Confidente. Lifting the Lid. Copyright © 2015