Inflation rates, average Malawian

Inflate, in simple English, means to enlarge or increase in size.

Economics, however, defines inflation as a general substantial increase in prices of goods and services.

When one talks about inflation rates, one is simply talking about the ‘size’ by which prices of goods and services have changed over a period.

The Nation of September 10 2012 carried a story headlined ‘Malawi inflation highest in Sadc’ showing how the country’s inflation has moved from 20.1 percent in June to 21.7 percent in July.

A few days later, the National Statistical Office (NSO) put inflation rate for August at 25.5 percent.

To an ordinary person, this simply means that the prices of goods and services have increased by almost 3.8 percent from July to date.

But the big question is: What does all this mean to an average Malawian?

First, Malawians should expect to see their purchasing power dwindling. The quantity of goods and services the kwacha used to buy a month a month go will reduce.

The picture one has is that of a low income Malawian who is earning so little money to save some after taking care of basic necessities.

This is true because purchasing power of an average Malawian will continue dwindling for one main reason; we have adopted unsuitable economic policies.

Costs of doing businesses will go up and companies will be left with no option, but to pass them on to consumers through prices they charge on goods and services.

In his story ‘Pill Too Tough to Swallow?’ (African Business July 2012), Lameck Masina quoted a civil servant Lyson Bwanali who made an interesting comment on devaluation of the kwacha: “Our salaries remain the same, so how can we afford to pay twice as much on basic necessities such as maize flour?”

With the current situation, an average Malawian should expect to experience shortages of basic commodities on the market. Some businesspeople will hoard their goods to be sold or used in future.

Two scenarios can explain this: Influential businesspeople will hold on to their commodities in hoping of making a killing in future and the rich will buy in bulk just to protect themselves against future (and rising) prices.

Now, who suffers? The average Malawian. One can neither blame the businessperson nor the rich in this situation.

The underlying problem here is uncertainty. We need to bring about a certain/ predictable environment in our economy, period.

Lastly, the average Malawian should expect to be buying goods or services of lower quality.

The reason explaining this is simple; this uncertainty in prices will discourage investments in Malawi.

Common sense would have it that environments with high inflation rates are undesirable for investors. One, this would mean unpredictable expenses for running their business, and two, this would mean few customers who are willing to spend.

The possibility that the already-existing supplier will not invest any more, or less at best, coupled with the probability that there will be less competition as less and less businesses are investing in our economy, leaves the average Malawian with half-baked goods/ services – why produce a superior product when customers will find it hard to buy you, anyway?

Adding flesh to the point above, Kingsley Jassi, through his article Investor holds USD20m venture over economy(The Daily Times, September 11, 2012), quotes a Chinese investor, a cell-phone and solar panel manufacturer, as saying they have withheld their planned USD20m investment in Malawi “because of the uncertain economic environment in Malawi”.

At this point, one can clearly see the uncertainty in prices (call it inflation) as a worrisome phenomenon. This is bringing economic misery to the average Malawian. In conclusion therefore, one would wonder: what are we doing to protect him or her?