Easing cost of living pressures

Idata across the globe seems to be pointing to easing cost of living pressures. The question in people’s minds is when will we start feeling the easing of cost of living pressure? Data coming from the global north shows significant movements in inflation to the comfort zones of the major central banks.

In short, the economy is still hot, but signs of cooling are starting to show.

The fact remains that prices are still very high, though the rate at which they are increasing has significantly slowed, inflation is not below peak levels. Today I will try and explain when one should expect to feel some relief in terms of the cost of living and what we can try to do in the short to medium term.

Interest rates

In order for the general public to feel some relief on the cost of living, there has to be a marked decline in the interest rate. A decline in the interest rate ought to decrease the obligation on prime linked debt instruments. The net effect on business and consumers will be an increase in disposable incomes, allowing for an increase in affordable consumption sets to consumers.

This is one channel through which the banked consumer should start feeling some relief on the cost of living pressures. At the beginning of the year, we had anticipated that the Central Bank of Eswatini would begin cutting interest rates early in the second half of 2024, however, inflation risks still remain. The South Africa CPI rose from 5.3 per cent in January to 5.6 per cent in February 2024. Though at present that is within the comfort zone for the Reserve Bank of South Africa, it still remains pretty close to the top, signalling that interest rate cuts might start at the tail end of the second half of the year not at the head. Effectively, the interest rates effect on the cost of living pressures may come later in the year, not as soon as we anticipated its onset. Another conduit through which we might feel a relief would be a rebound in wages.

Rebound in wages

Another conduit of a relief in the cost of living will be fast paced wages to catch up with inflation. This is what we call indexing for inflation, which requires that wages increase by a proportion that is just able to cover the increases in the cost of living with minimal inflationary risk. In essence, it is an increase in the wage level that only assists employees retain the purchasing power they had before the steep incline of the cost of living. In the current climate this has to be a calculated move, which requires astute balancing between increasing wages while keeping inflation at bay. Presently the economy is very hot, therefore, it is imperative that we calculate how much of a wage increase will keep workers at a level of indifference to pre-COVID consumption levels.

This signals that the negotiation tables may be a bit tense in the current year, considering that workers will be demanding steeper increases in the cost of living adjustment to catch up with the high prices. Employers, on the other hand, will also be bargaining for a not so fast increase since they also have to contend with high input costs. It becomes even more complicated for government since the concerns of managing inflation will have to be a factor in the negotiations table. Another channel through which we would start feeling relief would be strong growth and strong job numbers.

Improved job numbers

Another potential source of relief is through improved job numbers, the economy needs to create jobs. This will allow people the flexibility to move in between jobs in search for a better paying job, while at the same time absorbing entrants into the labour market. This would make it easier for people to cope with the cost of living pressures, through the income. If one takes time to notice improvements in consumer sentiment in the US and the UK is on the backdrop of strong job numbers and improved wage data. It is, therefore, imperative that government focuses all its efforts in ensuring that the economy creates jobs. It is incumbent on government to utilize the improved fiscal expenditure to ensure we reap the multiplier effect. The cost of living pressures can be alleviated by improvements in the cost of living pressures.

Weathering the pressures

At present, while we monitor the inflation data, it is advised that we continue being thrift with our expenses. It still benefits the consumer to shop during sales, and only buy items that are on sale from shop to shop. Also, one can substitute the commodities that they consume for cheaper commodities. For example, one can buy a cheaper variant of rice or maize meal. Bulk shopping can also be an effective method to weather the cost of living pressures; pooling of resources with your friends and colleagues and shop in bulk may save you more that you would ever know. Car pooling or using public transport is good both for your pockets and the environment.