INFLATION RATE VERSUS COST OF LIVING
By Charles Kakoma
In the recent few weeks, there has been debate on whether or not the declining rate of inflation in Zambia is real, given the high cost of living in the country.
Some people even believe that the drop in INFLATION RATE being announced by the Zambia Statistics Agency (ZAMSTATS) , formerly the Central Statistics Office (CSO) is just propaganda by the New Dawn Administration.
Perhaps, the question to be answered is; is the INFLATION RATE the same as the COST OF LIVING? The answer is NO. Here is why.
Inflation is defined as the RATE OF INCREASE in prices of goods and services in a given period of time. In a layman’s language; it is the speed at which prices are increasing over a period of time. The speed can be faster or slower as is the case in motor vehicles.
One can argue that inflation in Zambia moved from 8 percent before the PF government took over power to 24 percent at the end of its rule last year. One can also argue that the rate of inflation has dropped from 24 percent in August last year when the UPND took over government to 10.2 percent in April this year.
Of course, the argument by some people is that despite the decline in the inflation rate, they can’t feel the impact as the cost of living is still high.
What is the cost of living then?
The COST OF LIVING is defined as the amount of money One needs in order to sustain a certain lifestyle in a given place.
In Zambia, the Jesuit Centre for Theological Reflections (JCTR) has over the years developed a cost of Living index called the Basic Needs Basket. The cost of living index takes into account income needed to purchase the goods and services while the inflation rate calculates the speed at which prices are increasing or falling.
According to the JCTR, the Basic Needs and Nutrition Basket stood at K9,326.41 in April 2022, down by K85.13 from K9,441.50 in March 2022 for a family of five.
The cost of living is determined by comparing the prices of a range of goods and services on which consumers spend their money. It is important to note that not everything we buy goes into the calculation of either the inflation rate or the cost of living index. Only a sample is taken.
Is Zambia worse off or better off in terms of inflation and the cost of living? Statistical comparisons might help to answer the question.
The lowest inflation rates in the world are found in Qatar (negative 2.72%), Fiji (negative 2.59%), Bahrain (negative 2.32%) and United Arab Emirates (negative 2.07%).
The countries with the highest inflation rates are Venezuela (1,588%), Sudan (359%), Zimbabwe (98.5%) and Yemen (63.7%).
In Africa, Zambia is at 10.2 percent, Angola (25.7%), Nigeria (16.9%) and South Africa at 5.9 percent.
Other notable countries are China (8 percent), UK 9% and USA 8.3%. Refer to Statista.com.
The optimum rate of inflation recommended by economists is 2%. A negative inflation rate is not ideal because it inhibits economic growth while a high inflation rate is also destructive to the economy. Zambia’s aim is to achieve a single digit inflation rate of below 10%.
In terms of the cost of living, the most expensive countries in the world are Bermuda ( $9,353 per month), Switzerland ($6,885 per month), United Kingdom ( $3,319 per month) and the USA ($5,343) for a family of four people per month.
While inflation rates may be lower in some countries, the cost of living is however high.
It is estimated that Zambia is 22.8% cheaper than South Africa. Sounds unbelievable but true. Check http://www.mylifeeseverywhere.com.
Sometimes, the inflation and cost of living are also confused with the STANDARD OF LIVING. The standard of living refers to the level of wealth, comfort, material goods and necessities of life available to a certain social economic class or geographical area. It can be measured in terms of the Gross Domestic Product (GDP) per capita or Gross National Income (GNI) per person. Sometimes, people loosely also use interchangeably the words Standard of Living and the Quality of Life . The quality of life is more subjective than the Standard of Living. The quality of life is the wellbeing or happiness of the people in a given area or country. One would expect the USA and other rich countries to have the highest standards of living. However, the Scandinavian countries like Finland, Norway Sweden, Denmark and Switzerl have higher standards of living of over 90 percent in terms of meeting basic needs, foundations of well-being and personal freedoms.
In conclusion , it can be argued that when prices rise, they decrease the purchasing power of our money. When prices drop, they increase the purchasing power of one’s money. Inflation is bad because it erodes the purchasing power of our money. Inflation should be brought down in order to eventually bring down the cost of living and improve the standard of living. Inflation is the Father, Cost of Living is the Mother and Standard of Living is the Child. They are all members of the same family.
