Zambia’s escalating annual rate of inflation to 10.5 per cent in the month of September will continue to lead to increased cost of living, which would also erode consumers’ purchasing power, says the Zambia Institute for Policy Analysis and Research (ZIPAR).

In an interview, ZIPAR senior research fellow Caesar Cheelo said the increase in the annual rate of inflation would push up the cost of living in the country, whilst simultaneously eroding consumers’ purchasing power for goods and services.

Zambia’s annual inflation rate in September, 2019, spiked to 10.5 per cent from 9.3 per cent in August, 2019, the highest on record since October, 2016.

“The cost of living is increasing, isn’t it? That is precisely it! Prices are going up, but wages are not. So, your purchasing power, your ability to buy more goods and services is going down because your income remains the same, but prices are going up,” Cheelo said.

“So, a few months ago, if you had a K100, you could afford two bags of mealie meal, but now, you can’t even afford even one in many parts of the country with K100 because prices have gone up! That is the situation; you talk about mealie meal as a good example. Now, the purchasing power has been eroded. So, prices are going up on a monthly basis by small margins, sometimes at a big margin up to 10 per cent like this month’s (September) year-on-year inflation. Salaries, wages and earnings of people in business are not going up as much as prices. So, definitely, in that environment, the cost of living is going far ahead of the economic growth.”

He said the private sector that remained the dominant economic players needed continuous government support in terms of a conducive regulatory environment to help cushion the demand for most goods and services, which had played a major role in the increased annual rate of inflation.

“…So, programmes that government can support private sector will help to improve production; that production will lead to growth, that is why people keep on saying GDP (Gross Domestic Product) growth is so important because all these private sector players, the transporters, the people who are producing mealie meal, cooking oil, salt, Trade Kings and all these guys. The more they produce, the more they add to our stock on GDP, and the more they add to our stock on GDP, the more goods and services we have for people to purchase,” Cheelo explained.

“If we have more stock on the market, then the price of each unit goes down, which makes it affordable for people to buy. If you have 10 different producers of cooking oil, each of them will be competing for space on the shelf in Shoprite or wherever. As they compete, they will offer lower prices. You stimulate demand, you stimulate supply, you get the balance.”

He outlined that there was need to strike a balance between the demand and supply of goods and services in the country.

“So, to understand where inflation is coming from, you will need to understand the structure of the economy. The economy requires some sort of balance between what people earn and what they are able to spend, and what the economy is generating. So, in a very simple way, people will always say inflation is about too much money chasing too few goods. So, to fix that equation where you have too much demand compared to the goods and services, one thing you have to pay attention to is how you meet that demand,” said Cheelo.

“People, who like mealie meal, if there is no mealie meal, the price of mealie goes up; people who would like cooking oil, if there is a slight shortage of cooking oil, the price of cooking oil goes up. How do you fix that if people still want the cooking oil because it is a necessity? You have to produce more cooking oil. How do you produce more cooking oil? Pay attention to private sector development because they are the guys that do the production.”