Inflation and people’s pocket

As the Consumer Price Index (CPI) goes down it is expected that the purchasing power of people will increase. But is that really the case? Asks Maxwell Adombila Akalaare

ANNUALISED inflation for the month of April dipped by 0.11 per cent from its previous month’s figure of 9.13 per cent to 9.02 per cent in the month under review.
The fall, the second in a row after an increase in the ex-pump prices of some petroleum products in the country reversed an 18-month downward rate, has re-affirmed earlier thoughts from policy makers and some analysts, especially the government’s economic handlers that the January and February rise in the rate was only a blip due to the fuel price hike.
The Government Statistician, Dr Grace Bediako, who announced the figures noted that the food and the non-alcoholic beverages group, which contribute a 44.91 per cent weight on the overall basket, helped to push the rate downward.
According to her, while the food and non-alcoholic group had a 0.52 per cent point decline, the non-food group recorded a 0.16 per cent increase.”
Dr Bediako attributed the 0.52 per cent decline in the rate in the food and non-alcoholic beverages group to “the present stable exchange rate and the bumper harvest experienced last year.”


INFLATION IN THE REGIONS
The Greater Accra Region again recorded the highest inflation rate of 12.31 per cent, followed by 11.58 per cent for the Upper East and West regions.
The Volta Region, however, recorded the least rate of 5.24 per cent, followed by the Northern Region, which recorded 6.83 per cent just a 0.01 per cent difference from the Eastern region's figure. 


APRIL INFLATION DOWN, SO WHAT?
Inflation in basic terms measures the rate at which prices of goods and services in the country changes, so that if the figure is consistently rising, then prices of goods and services are consistently increasing and that definitely is not good for the private individual, business community and the government as well. For the private individual, the family budget  would have to be tightened or left loose because, a loaf of bread can sell from GH¢0.80 this week but jump to to GH¢1 come next week or two.
As for the business community, planning a business decision becomes a game of chance because the folks are not quite sure of the price of the company's raw materials come next week.
And for the government, consistent price surges will mean a distress populace seeking extra money to offset the increases not to talk of its reeling effects on other macro-economic indicators  and government policies and decision. A declining inflation rate leads to the reverse of the above.

EFFECTS OF DECLINING INFLATION
The issue of falling inflation and "feeling it in the pocket" as running contrary has received much attention, and that could be partly due to the misconception that once the inflation rate is falling, prices of goods and services should equally be declining. In most cases, however, this has not been so.
This is because the basket that measures the year-to-year inflation on monthly basis is taken to be 100 per cent but further divided into two major groups, the non-food (which has 55.09 per cent weight) and the food and non-alcoholic group (with 44.91 per cent weight). Each of these groups has further sub-groups that individually act to determine the respective group's impact on the overall figure.
For instance, if the individual sub-groups of the non-food group records minimal price increases for the period under review, say May, while that of the food and non-alcoholic beverages group records a heavy rise, the lower average change in prices recorded by the non-food group, which has a weight of 55.09 per cent, would offset the overall figure and possibly cause it to go down despite a rising prices within the other sub-group.
When this happens, and the (May) figure is announced as having gone down, ordinary Ghanaians would have every right to say "let us feel it in our pockets". But understanding the dynamics is also key.
The reverse can also happen for the figure to go up or remain unchanged.
The other reason why declining inflation may not be felt in the pocket is that even though inflation may decline, the actual situation on the ground might have been "suppressed" by the continuous fall in the prices of other sub-groups within the same group or outside.
The third reason is this caution that a downward inflation would not mean that prices of goods and services are not increasing. What it rather means is that  the prices could still be rising but at a rather slower pace.
 So let us take inflation to be a moving vehicle. The fact that the vehicle's speed has been slowed in traffic (inflation has dropped) does not mean that it is not moving again. What it rather means is that the vehicle (prices of goods and services) is now moving on a consistently slow pace (the prices are rising slowly.)