Mussie Delelegn Arega (PhD)¹

Part 2

Controversies surrounding inflation

The concept of inflation or inflationary gap is as old as the study of economics. It is one of the subject matters where governments and academics and financial institutions collate and compile data regularly and systematically. Likewise, there is overwhelming historical and empirical evidence on the bad, worse and the ugly face of inflation. Causes and consequences of inflation are also among the exhaustively researched, most debated, and widely published subject matters in economics, development economics, finance, political economy, and business decision-making processes. As it is directly linked to a business cycle or industrial fluctuation, the phenomenon of inflation is one of the carefully watched and seriously followed matters both in the theory and practice of business cycle as well as entrepreneurship.

As in the past, currently, debates on inflation are raging once again across nations, political establishments, economists, central bankers, monetary and fiscal policy experts (and practitioners). As they are within trade, finance, or development-oriented regional and global institutions. At the national level, the US Senate adopted the Inflation Reduction Act 2023. Political establishments and parties in many other countries-developed or developing-have also been extensively debating as to what to do to curb inflationary pressure on economies and societies (often along political lines of arguments). Some countries are using export controls or bans on domestically consumed foodstuffs to minimize the negative impact of price increases on their citizens and on the purchasing power of local currencies. The July 2023 meeting of ministers of finance and central bank governors of the G-20 held in Gandhinagar, Gujarat (India), was devoted to, among other things, how to best address inflationary pressure and fragmented global demand and supply challenges while maintaining stable microeconomic and macroeconomic policy environments. The extent and the frequency of debates show the seriousness of the matter and the determination of policymakers to get rid of inflationary pressure in their economies. This is because high inflation puts economies and societies at serious risks, and heightened uncertainties, with the poor and the vulnerable bearing the brunt of its adverse consequences.

Despite all the efforts and growing consensus on its adverse socioeconomic consequences, inflation remains conceptually messy and analytically controversial. There is no common understanding about its causes, transmission mechanisms, socioeconomic impact, what it does to the economy or how to contain it. Researchers and policy experts often clash on the causes and consequences of inflation, as well as its precise transmission mechanisms. Debates are inconclusive and reaching agreements on how high prices should be allowed to rise and how long they should keep increasing remains elusive. Moreover, there is no conclusive evidence on the causal relationship between inflation and economic growth, although higher inflation is believed to be anemic to economic growth. Nor is there a common understanding of what level of inflation is good and what level is bad for the economy and societies. Questions as to why inflation is inconsistent or variable over time particularly at double-digit level is still the subject of debates and controversy. Worst of all, inflation is the most confusing, unfathomable, and conceptually difficult subject for political elites to fully grasp its causes, consequences, and potential remedies. Yet, political elites both in developed and developing nations attempt to use and misuse inflation to advance their political interests often by inflating their economic scorecards.

How is inflation measured?

Measuring inflation involves complex statistical, mathematical, and econometric algorithms. It also involves the combination of skills of economists, data scientists, statisticians, and the latest software or more recently, programming specialists. In developed economies, multiple indices such as the producer price index (PPI), the urban consumer price index (U-CPI), the wage-earners consumer price index (W-CPI), the personal consumption expenditure index (PCEI) and the Gross Domestic Product Index (GDPI) are used to measure inflation. However, most developing countries use regionally disaggregated national consumer price index (CPI). In several other countries, urban or cities focused consumer price index is used to measure average changes in prices of consumer items between two reference time periods. Since most countries of SSA use CPIs, the focus here will be confined to this index.

CPIs have long been in use (since the 1870s), although the indices have significantly changed or evolved over time both in the methodological rigor of measurement, the objectives, and purposes for which the index is used, and the extent of goods and services measured by the index. CPIs use data from household surveys and provide an estimate of the price changes for consumer items used by most households such as food, clothing, shelter (rentals), medical services and supplies, etc. which yield weighted average of prices by using arithmetic or geometric mean. Therefore, CPIs measure price changes in the consumption sector of the economy and they do not measure investments or production aspects. For instance, such indices exclude investments in stocks, bonds, real estate, and business-oriented services.

In terms of methodology, CPIs go through different computational iterations and statistical processes, ranging from sampling surveys, data collection (and organization), normalization, weighting, standardization, and aggregation, among others. It is important to emphasize that CPIs are not a perfect measure of price movements, but they are the best available tools to gauge the trends in consumer prices for use in public and monetary policy making processes. However, the CPIs are not costs-of-living indices. Nor do they measure relative living costs, as they do not show price changes in two different geographical locations or cities within the same country during measurement periods. Moreover, CPIs only show goods and services that are in the survey samples that are consumed or used for day-to-day living, leaving prices of many other consumer items excluded or unmeasured. The CPIs also suffer from sampling errors and their accuracy largely depends on the verity and honesty of responses given by consumers or households. Besides measuring price movements, CPIs are used for different purposes particularly in developed economies. These include indexation of wages, pension income, and social security with respect to consumer price movements. It is also used for indexing interest rates from investments, rental payments and to deflate household consumption expenditures, national accounts or purchasing power parities.

As discussed earlier in the article, in sub–Saharan Africa, an important contributor to consumer price rises in recent years is food inflation, given that the region historically faces shortages of production due to several factors. These include weak economy-wide productive capacities and the low productivity of agriculture, poor land policies that limit access to women and other vulnerable sections of society, climate change impacts and the combination of other supply-and demand-side constraints. Rising cost of energy (electricity) and fuel in several countries of SSA also contributes to the rise in consumer price indices, undermining agricultural and manufacturing value added to GDP and making transportation unaffordable particularly to the poor. For many countries of SSA, agriculture is the dominant sector in terms of employment generation, ensuring food security, generating export earnings and in its share in GDP. However, the value of addition from agriculture has been precipitously declining over the last several decades. For instance, in Zambia, more than 66 percent of the population earns its livelihood from agriculture, but the GDP share of agriculture remains low at around 3 percent.

Baby Ruth was introduced to this cruel world early last year by a single mom…… a frail looking woman with matchstick limbs and a gaunt face – obviously as a result of many years of poor health, hence the devastation and ravaging of her body! Baby Ruth was a very pretty baby……with dashing looks – curly hair, dimples that seemed permanently etched on her cheeks, thin lips and what in the ghetto parlance is commonly referred to as “colour yandeke” – attractive skin colour!

She was constantly a topic of discussion regarding her true paternity…..was it one of those Chinese men terrorising the shanty compounds in pursuit of vulnerable women? Was it a Caucasian? Or perhaps a man of Asian origin? Although the lady had fingered a certain local individual as the one responsible for the pregnancy, the locals dismissed it as a bad joke!

“There’s not a single day we’ve seen that embicile sober…..” they’d say. “Moreover, he’s as dark as the Devil himself! There’s not a single chance in this world he could’ve fathered that child.”

Had she been born in a privileged family from one of those leafy suburbs, she could’ve definitely made it in one of the commercials or easily graced magazine front page covers and indeed billboards as a brand ambassador for a wide range of products such as baby cereals, diapers, apparel among other things.

It was clear right from the word go there was no place for her in this cruel world! Isn’t said, “Naked we came into the world and naked we shall depart?” Well…….for Baby Ruth though….this would be a grim reality for the next one year and a month she’d spend on earth.

Delivered in a poorly lit, windowless room on a bare floor save for a worn reedmat as her mom could neither walk nor afford transport money; she didn’t have the opportunity of interacting with other babies at Under 5 clinic, either! It could obviously have been a scandal for her to turn up at Under 5 clinic naked! Her clothings were simply scraps of material fashioned out of old clothes. Even as she started learning how to crawl or try to stand, she did so in her birthday suit……away from the probing eyes!

Baby Ruth belonged to a family of eight……an extremely poor family. Although they equally shared a life of squalor and poverty, those in the neighborhood usually referred to them as a family of scavengers! While the 4 older kids, 13 to 17 year old siblings seperated only by a year headed into different directions every morning to scratch for scrap material or even vegetables from the dumpsites, the younger ones took to the streets to ask for alms. School things weren’t on their minds, of course!

It’s hard to fathom how human being could live in such precarious conditions – raw sewer could be seen spilling from an overflowing pit-latrine until it mixed with water from a clogged drainage to form islands of puddles right across the yard. The overpowering odour filled the air and wafted straight into the block of flats as a trail of a swarm of green flies seemed to be in constant hot pursuit. Some kids could also be seen engaging in horseplay totally oblivious of the overpowering stench. Since residents didn’t enjoy the luxury of piped water, their source of water was a shallow well not far from the pit latrine resulting in stomach infections from time to time.

Whenever Baby Ruth started crying, she would go on forever. She would desperately try to pull or slap her mother seeking for attention who in turn would thrust one of her floppy breasts into her mouth……and then another…..but there was either little or no single drop of milk, unfortunately! This would obviously infuriate Baby Ruth; prompting her to shriek even louder as she threw her tiny limbs around in protest. Once the mother succumbed to obvious exhaustion, she would just abandon her on a stained thin mattress on the floor and watch cry.

Once Baby Ruth had fallen into a deep slumber, her mother would drag herself to the doorway to make fire. She would then ask her younger kids to pluck out some green mangoes, tiny ones for that matter, and roast them on the fire. They would then suck on them as much as possible until they experienced a feeling of food into their stomachs.

On a good day, her two sons would return home with economic packs of mealie meal. Depending on the situation, they’d settle for a meal of plain porridge or nshima with boiled bondwe leaves or some tiny tasteless dried fish called Kapenta.

The rain season would always bring with it its array of challenges or problems. Whenever it rainied cats and dogs, water would find its way into the small room through various openings in the roof……well, merely a collection of cardboards, plastics and metal sheets on top of the roof leaving the entire floor flooded. The family would wad through the water until they found a safe spot to huddle around. If they thought their woes were over once the rains petered-out, then they were in for a rude shock! Mosquitoes would immediately come pouring in fast and furious, mercilessly stinging on them as they drilled irritating shrill sounds into their ears. While the elderly ones tried flapping away or smashing the mosquitoes, Baby Ruth could only watch and cry helplessly as the mosquitoes tormented her!

As if this wasn’t enough, a flood of cockroaches would equally invade the room from crivices in the wall and nibble at tender parts of their bodies as rats scurried around waiting for an opportune time to gnaw at their feet or ears.

During the day, Baby Ruth would stare at the strangers questioningly…… obviously wondering what share of trouble those humans had brought with them. Noone would ever figure-out whatever turmoil went through her little mind.

Once she had started cutting her teeth, she would cry into the night; lack of baby cereal definitely aggravating the situation! She had to make do with the less nutritious porridge which the adults consumed.

One morning, her little body seemed to give up. She was having trouble breathing. She couldn’t even eat or drink anythingvat all! Her mother hastily collected some roots and leaves from this tree and that tree and made a concoction. Unfortunately, the situation kept deteriorating and mixed it into a bottle. When this couldn’t bear any effects, they had to rush her to the doctors! As the doctors tried to fidget around with her body trying to find veins where to jab a needle to replenish her blood, they couldn’t trace any.

It seemed she was done with this cruel world….she was on her way back home……away from the grinding poverty…….away from a possible life without a future……. away from all the pain and misery……..away from debilitating illnesses…..away from excruciating poverty!

The funeral itself was a low key affair…..only a handful of mouners showed up. There was only one vehicle to take the remains of Baby Ruth to the cemetery……. mouners had to find their way on foot…….some good 40 kilometres away! There were no speeches….no one was there to give a speech. There was no one to read her life history…….Not even a church service as the mother never belonged to any church! The coffin was simply a collection of ordinary white washed particle boards nailed together.

Such is life in the shanty compounds. What do you think, should reproductive health be encouraged?

Prince Bill M. Kaping’a
Political/Social Analyst