Maravi

EAZ urges translation of reduced inflation rate into benefits

EAZ urges translation of reduced inflation rate into benefits
By Fridah Zinyama
Tue 06 July 2010, 18:00 CAT

THE Economics Association of Zambia (EAZ) has said the drop in rate of inflation should translate into a meaningful improvement in the lives of poor citizens.

And University of Zambia (UNZA) economics lecturer Webby Wake said the reduction in the rate of inflation from 9.1 per cent in May to 7.8 per cent in June is going to strengthen the purchasing power of the general citizenry.

The reduction in the rate of inflation in June is mainly attributed to the decrease in some food prices such as mealie-meal, maize grain, fresh vegetables and dried Kapenta.

The annual rate of inflation recorded in June is the lowest rate that the country has recorded in a long time.

In an interview, EAZ national secretary Isaac Ngoma said although the reduction in inflation was a positive development, it should translate into the growth of the economy, job creation and a reduction in poverty levels in the country.
“It is also important that ways are found in sustaining this low inflation rate,” he said, adding that inflation targeting was worrisome as it does not affect the people on the ground.

Ngoma said the low inflation rate was good for the country as it would attract investment in key sectors of the economy.

“Inflation is a major macro-economic indicator which is used to attract investment,” he said. “But the worrisome thing that might take away from this positive development is the high pump price for fuel which the country is currently experiencing.”

Ngoma said it was worrisome that production was being affected by the high fuel prices which the country was currently experiencing.

“Something should be done about the high fuel prices such that if inflation drops it should also be due to a drop in the cost of production and not just a decrease in food prices,” he said.

Ngoma observed that the drop in inflation in June was mainly attributed to the decrease in food prices as this is the harvesting period and not to any other factor in the process of production.

“We have produced a bumper crop and people are still consuming what they have harvested but if the country offloads the surplus crop, we might experience higher prices once the harvesting period is over,” he said.

Ngoma said it was very important for the country to diversify its agricultural production to other sub-sectors like livestock and dairy production which can be used to grow the economy.

“It is also important that our currency also appreciates so that it has compounding purchasing power in order to allow the ordinary people to buy basic needs,” said Ngoma.

And Wake said the drop in the rate of inflation for month of June was good for the business community, as a high inflation rate was very disruptive to planning.

“Due to an increase in the purchasing power, there is going to be an increase in demand for imported goods which might affect the country’s balance of payment if the country is not exporting more goods than it is importing,” he pointed out.

Wake said this might also affect the local currency, as demand for the dollar might increase as people wish to import more products.

“But this might not be the case if all goods were produced locally,” he said.
Wake added that the drop in inflation in the month of June was an indication that the country’s economy was on a path to true recovery.

The effects of inflation on an economy are manifold and can be simultaneously positive and negative.

Negative effects of inflation include a decrease in the real value of money and other monetary items over time; uncertainty about future inflation may discourage investment and saving, or may lead to reductions in investment of productive capital and increase savings in non-producing assets like selling stocks and buying gold.

This can reduce overall economic productivity rates, as the capital required to retool companies becomes more elusive or expensive.

And high inflation may lead to shortages of goods if consumers begin hoarding out of concern that prices will increase in the future.

Positive effects include a mitigation of economic debt relief by reducing the real level of debt.

Labels: EAZ, UNZA

posted by MrK @ 4:22 PM