Inflation Hurts

February 2007 | By Rawle Lucas

Indicator of Price Level

In June of 2006, the Bank of Guyana reported in its Half-Year Report that the Consumer Price Index (CPI) for all items had risen by 18 points over where it was one year ago in June 2005. Most people look upon the CPI as an indicator of the current price level in the country. This 18-point rise in the CPI translated into an 8.4 percent increase in the average price level between the two points in time. Since every price in Guyana seems to start with a G$100, what this meant was that by June 2006, Guyanese had to find G$8 more to add to every hundred dollars to buy anything. On the face of it, this increase in price looks inconsequential and may probably be dismissed as insignificant by those with deep pockets. Even the not-so-well-off may conjure up thoughts of Shylock, the miserly businessman in Shakespeare’s The Merchant of Venice and think that G$8 is much ado about nothing. For all its scantiness, this increase in the average price level in such a short space of time masks a real danger to private investment and a threat to the dreams of the micro entrepreneur.

Less to Eat and Drink

Inflation is no good for anyone but more so for persons whose paycheck is not rising as fast as prices. This reality hits home quickly if the check that the person receives is the same amount month after month as is the case with pensioners and public service employees whose take home pay remains the same for extended periods of time. Finding an extra eight dollars to spend with every hundred dollar every time a consumer in Guyana goes to the shop results in bringing home less to eat and drink and leaves little for savings. This concern extends to anyone who participates in the economy and includes small-scale entrepreneurs who rely on intermediaries for supplies and raw materials and whose reinvestment of profits may not go as far as it did a year ago. A look behind the numbers in the Bank of Guyana report helps to tell why inflation hurts us all.

Not Always Possible

The 8.4 percent increase in the general price level referred to above is among the best part of the inflation story. In a table that lists the nine categories that make up the all items CPI in the report of the Bank of Guyana, good news also lie in the numbers for furniture which showed the smallest price increase, 2.4 percent. The other numbers that influence the 8.4 percent contain much more undesirable news about prices and production of specific categories of services and goods such as education, healthcare, furniture, transportation, housing, and foods like vegetables and fruits. These are things that people need to survive or rely on to do business everyday. Access to essential foods and services like transportation and healthcare at affordable prices is about survival and quality of life. With prices rising, acquiring these goods and services in sufficient quantities to meet business goals and personal living standards was not always possible. For example, the price of vegetables and vegetable products went up by 19 percent between June 2005 and June 2006, more than double the average price increase. Thus, by June 2006, to eat a healthy meal that included vegetables and vegetable products, consumers in Guyana had to shell out an additional G$19 on every hundred dollars that they had grown accustomed to spending on vegetables in the market.

According to the Half-Year Report of the Bank of Guyana, the floods of 2005 and 2006 caused the enormous increase in price of vegetables. It is interesting to note that prices in restaurants, entities that depend on the same vegetables and vegetable products, went up by a mere 6 percent during the same period. According to the Bank of Guyana, higher healthcare costs were driven by significant cost increases in medical technology, equipment and supplies. This should be a warning to Guyanese, stay healthy for even sick people with money risk going broke before dying. Also, if a person was paying rent where they lived or conducted business, that person would have to add G$12 to every hundred dollars they previously paid in rent. So, imagine paying G$20,000 per month in rent. In order to continue living or operating at the same place after June 2006, a renter would have to find an additional G$2,400 each month. Just to perform basic human functions of eating and sleeping, a person had to obtain a salary or revenue increase of at least 16 percent.

No Leverage

Rising prices for the goods and services needed to keep business going result in the acquisition of less and less materials and the production of fewer goods. Guyanese often speculate that every businessman in Guyana is able to pass on higher costs to the consumer, and that the small entrepreneur can behave the same way. Size and competition constrain them since most small entrepreneurs tend to operate in highly competitive markets. Hucksters, for example, quite often operate alongside each other in the municipal markets, on the mall or on the pavement. They usually have no leverage and are often price takers who cannot sell their goods and services at excessive prices for fear of losing customers to the competition literally standing over their shoulders. Even if the micro entrepreneur pushed prices up, demand was likely to fall since consumers would not have sufficient money to pay.

Conclusion

Ordinarily, it is not easy to make ends meet when incomes are fixed at low levels. Attempts to do so get worse when the cost of living goes up and the money that one has does not keep pace with the cost of living. This makes it difficult for anyone, including small business owners, to stay afloat and help keep the economy going. Every successive increase in price makes it harder for small business owners to survive and constantly challenge their efforts to improve the quality of life for themselves and family. When they get hurt, the consumers who depend on them also get hurt.

Permission required © 2006 Rawle Lucas

Copyright ©2007–2010 G.Y.F.T.