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Thursday, 7 October 2010

Inflation Statistics - September 2010

The annual rate of inflation, as measured by the all items Consumer Price Index (CPI), reduced to 7.7 percent in September, from 8.2 percent in August. The 0.5 percentage point reduction is attributed to the "reductions in the cost of some food and non-food items". More detail via the CSO Monthly Bulletin.


  1. It would be interesting to superimpose the poverty rate and other human indicators on top of the inflation rate, just to point out the stupidity of pursuing low inflation as a means toward development.

    It is never pointed out what the neoliberal rationale for low inflation rates is. Or keeping or even creating high unemployment levels and low levels of job security for those few who are in employment.

    They are all about making the conditions as positive as possible for transnational capital, and as miserable as possible for the people of the country.

    So I say, let's drop neoliberal, supply side economics and adopt demand side economics - works (infrastructure) projects, full employment, universal education and healthcare to build human capital, easy credit for entrepreneurs. And the way Zambia as a leading copper exporter can finance that, is by massively taxing the mines.

    Also, has no one connected the dots from the deflationary environment to the fact that the banks are not lending to people? When there is deflation, everyone has an incentive to just keep their money in the bank, because the deflationary rate represents a risk free increase of their capital. It is only when there is (mild) inflation, that there is the incentive to find projects that have a (any) return on investment, because keeping money in the bank is a sure way to know it is going to be worth less a month or a year from now. But when there is deflation, that increase in the value of capital is risk free, and therefore any investment must be a multiple of the deflationary rate just to make up for the risk that is taken when a project is funded.

  2. The problem with high inflation is that it debases the currency. People have less confidence in the currency and move their money to other assets such as gold etc. It also makes economic life difficult, in terms of tracking prices and paying for goods (as seen in Zimbabwe in the past where people were carrying large bundles of money in their shopping bags to pay for goods).

    The problem with deflation or very low inflation is that it can lead to a deflationary spiral, where producers receive less money for goods sold, resulting in them laying off employees, those laid off employees spending less, leading to a further drop in prices and producers receiving less and so forth.

    The goal in my opinion is to have an inflation rate that is neither too high nor too low. From my observations, a 2% to 3% inflation rate seems optimal.

    Banks may not be lending to people they think are too risky and unlikely to pay back a loan, rather than basing their decisions on inflation or deflation - they can select a loan interest rate which accounts for expected inflation or deflation rates.


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