INFLATION UNAMBIGUOUSLY
In the contemporary society, Inflation and unemployment are the two most talked- about words.Almost everyone is sure that he knows what inflation exactly is, but it remains a source of great deal of confusion because it is difficult to define it unambiguously.Most times we hear economists and policy makers talk about inflation and realise we really don’t understand what inflation is. For over a period of time Kenya has been experiencing rapid inflation rates at an alarming rate and this is concerning. Inflation is a state in an economy where the rate of prices per unit quantity has gradually or drastically accelerated or increased over time. Over the past two years since 2020 prices of commodities in the market has increased reaching levels that are new even to the economists in the field. Since the COVID breakout late 2019, economies all over the world has suffered greatly due to the high prices. This has led to many economies falling into recession. Kenya for example has experienced an inflation rate increase of about 9.4 percent. This has been evident mostly in the previous few months and has been said to be as a result of the Russia/Ukraine war that’s ongoing. The high prices in food and fuel reached the highest in the month of August and October and has seen the consumer price index increase with approximately 0.8 percent. Meaning the citizens have to pay about Ksh 80 more for every unit of good or service that they consume. This has seen many businesses closing down, even some companies which has been spread down to even some families breaking. One may ask why is that so? This is the reason , when inflation rate increases this affects the quantity of goods or services that a consumer consumes, meaning the demand of particular goods and services will be affected negatively, this means low supply, which means low production which means low profit margins which has led many companies lying off workers as they try to cut the cost and the after effect of inflation. Inflation also has affected the saving culture of many people as they dig deeper into their pockets which leaves them with little or nothing to save at all. One of the effects of inflation is that it leads to high prices which in turn lowers the consumers purchasing power as we discussed earlier above. Secondly inflation also lowers the values of pensions, savings, and Treasury notes, this is because most times inflation rates will be higher that the rates of returns obtained by pensions, saving and even the treasury notes. The third effect of inflation is that it increases the rates on loans making those servicing loans to spend more than they would have spent incase inflation was not experienced or was moderate. Inflation also has sometimes a positive impact on the economy but this is only experienced on the mild inflations as people tend to spend now fearing that tomorrow may see the prices higher than today. This spending increases consumptions which sees an increase in economic growth. That’s all for today on inflations.
It has always been awesome to interact with Economist Muguro. Always insightful and deep eyed. Make sure to read our next article to learn more matters affecting our daily lives and also to equip yourself with more knowledge on different topics. For mor information reach us through info@reikims.co.ke
