eBusiness Weekly
Clive Mphambela
Hospital doctors and nurses eventually called off a three-week strike earlier this week. Several hospitals had been shut-down following a crippling doctors strike, joined by nurses and other critical hospital staff including, surgical registrars.
Other hospital workers could no longer perform their duties as they were being equally affected by the doctors’ strike and nursing staff who had joined the strike in various parts of the country.
The medical personnel, are basically demanding improved allowances and medical equipment among other things. However, there are underlying economic factors. Not only were are medical personnel poorly remunerated, but the cost of living has gone up.
In an article earlier this year, entitled “Is Zim entering a Wage Inflation Spiral?” I cautioned that in 2018, there is potential for increased labour relations issues on the back of the rising cost of living.
Sadly, as many economists pointed out, the Consumer Price Index seems not to capture the real dynamics that are affecting the ordinary worker. It is not surprising that we are facing increasing wave of wage demands right across the economy.
Whilst on 15th of March 2018, Zimstat reported that headline annual year-on-year inflation for the month of February 2018, as measured by the all Items Consumer Price Index (CPI) stood at 2,98 percent, having shed 0,54 percentage points from the January 2018 rate of 3,52 percent, the question in most ordinary peoples minds is “how is this possible”.
According to the Zimstat official figures, prices as measured by the all items CPI increased by an average of 2,98 percent between February 2017 and February 2018. Really?
Whilst the CPI methodology used by Zimstat is unquestionably statistically robust and in line with various internationally accepted conventions and guidelines that govern the collection and presentation of such statistical data, many consumers, business owners and analysts have decried the efficacy of the CPI as a tool for planning their personal, household or business finances.
The CPI may work as a broad policy tool, but given the realities and challenges of actual day to day cost and expenditure patterns faced by businesses (producers) and consumers who are wage earners in the economy, the pervasive question has always been:
How useful is the CPI to the average business, or person. My short answer is that “the CPI is not very useful”. For the ordinary consumers, the CPI is seriously divorced from the average person’s cost pattern, which is driven mainly by the food basket and other basic necessities such as housing and rent, school fees, fuel and transport costs, clothing prices and so forth.
These are the things that really matter to the “average consumer” (wage earner) that Zimstat refers to in its commentary accompanying the December CPI data.
It is the inflation in these items that drives household expenditure patterns, which are the subjective measure of inflation as “experienced” by the consumer.
However, the 2,98 percent Annual CPI is clearly watered down by the inclusion of other categories into the consumption basket that are totally irrelevant to the average consumer, or average Zimbabwean, who is facing huge jumps in prices of the products that really matter to him.
Whilst we cannot challenge the authenticity of the CPI data released by Zimstat, it remains sufficient to say that the reality of the average business and average consumer is that prices of goods and services, have risen by significantly more than the 2,98 percent suggested by Zimstat.
Estimates of prices rises range from 50 percent to 200 percent for some items.
Relying therefore on the CPI as a planning tool becomes hazardous for business as cost patterns in the real economy are significantly different. This creates problems for business and labour. Workers are really feeling the pinch from real declines in disposable incomes. Companies are also facing real challenges in budgeting and planning for their costs and the CPI cannot be relied upon.
Something must be really done. At the very least, we may need a realignment of the various category weightings in the CPI with the demographic and spending patterns of citizens and businesses not only to make the CPI more indicative of the realities on the ground, but to make it more relevant as a planning tool.
Already as I write, workers are clamouring for wage reviews of up to 200 percent, which is a fully justifiable demand given the unrecorded inflation that is pervading our economy.
At the same time, companies and employers are facing unpredictable business costs given the hysteresis and upheaval in the informal currency markets which are driving up, not just business costs, but prices of goods and services.
These are challenges that the relevant agencies within Government should closely look at and engage on, if things are to make sense.
Without an accurate measure of the real price dynamics in the economy, the economy faces real risks that wages may eventually rise faster than productivity, if the current demands from the labour unions are implemented, further derailing any prospects of achieving economic competitiveness.
At the same time, if employers do not put on the table reasonable wage adjustments that will somewhat improve the plight of the workers, who are facing genuine pressures from the continuously rising prices of basic goods, we will continue to have disharmonious employer-employee relations right across the economy.
Bearing in mind social relations are already strained, any further stress will result in the worsening of social tensions.
It is conceivable that labour will continue to press employers for higher wages, as the year progresses. However, due caution and restraint should be exercised by all parties so that the economy does not continue to slip into a wage inflation spiral.
The writer is an economist. The views expressed in this article are his personal opinions and should in no way be interpreted to represent the views of any organisations that the writer is associated with.
