Most Zimbabweans consider themselves to be well versed when it comes to basic and sometimes even advanced economic concepts. Living through two economic meltdowns tends to have that kind of experience on people. However, it seems a lot of people are confused by the latest figures from ZIMSTAT with most people failing to reconcile the fact that inflation has fallen but prices for most items are not coming down while the total consumption line has also gone up. In this article we will attempt to explain in simple terms the reasons for this.
Inflation is a measure used to gauge the rate at which prices are increasing. As long as the inflation rate is positive it means prices are increasing. So for example the inflation rate for July 2020 was 35.53% compared to 8.44% in August 2020. What is simply means is that on average prices rose by about 35% in July compared to the prices in June 2020. It also means that prices rose by an average of 8.44% in July compared to prices in August 2020. The rate at which prices are going up has slowed down, it doesn’t mean that prices are not going up.
Remember it’s an average
If you notice above we keep saying on average. That is because the inflation rate is calculated by keeping track of a basket of goods (i.e. a specific variety and quantity of goods). So for example the commonly used basket is the so-called consumer basket which is determined by ZIMSTAT. They do a survey each month to ascertain the prices of these goods in various shops across the country. Average prices are then ascertained for each product as these averages are used to compute the final average price changes. There are other “inflation” rates besides the common one. For example there is an index that keeps track of industrial price changes.
It is thus possible that the prices of various goods might actually have decreased but averages have a tendency to smooth out the effects of extremes. This means that if there are products whose prices went down they would have a negative individual “inflation” rate but since the finally tally is an average this negative change is hidden as it is countered by the majority of positive individual inflation.
As always ZIMSTAT has done a good job of explaining how Total Consumption is calculated and what it means:
The Food Poverty Line #FPL for one person in August 2020 was $1,442.00 while that for an average of five persons per household during the same month was $7,211.00
The Food Poverty Line (FPL) for one person in August 2020 was $1 442.00 while that for an average of five persons per household during the same month was $7 211.00.
The Total Consumption Poverty Line (TCPL) for one person stood at $3 449.00 in August 2020 while that for an average of five persons per household during the same period stood at $17 244.00.
The Total Consumption Poverty Line ((TCPL) measures the monthly income a family needs in order not to be considered poor. Zimbabwean households have on average about 5 members hence the assumption made by ZIMSTAT here. Because prices are still going up, albeit at a slower rate, the TCPL keeps climbing.
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