We warned in May 2018

20 Sep, 2019 - 00:09 0 Views

eBusiness Weekly

On May 04, 2018 we published an article by Clive Mphambela titled “Address the restive labour issue”. It is our strong conviction that if leaders spare some moments and reflect on these thoughts it might help in making decisions that will impact positively on the economy. We reproduce the article in this edition.

Clive Mphambela

There has been a common-occurring theme in recent weeks regarding the labour economy.

Firstly, Government-employed doctors went on strike but subsequently received what they were demanding.

Secondly, nurses followed with industrial action but unfortunately were threatened with dismissal.

Only last week, teachers put their employer on notice, threatening a strike as soon as schools reopen in a week’s time.

Yesterday, newspapers carried a headline that bank workers are also threatening industrial action.

The common thread in all this is what we have warned about in this column.

Wage inflation has not kept up with the rise in the cost of living.

The CPI indicator has become irrelevant as a measure of shifts in the cost of living, and indeed in the cost of doing business. The trends which we predicted earlier on in the year is really just the beginning of similar hysteresis in the labour sector.

However, there is an underlying economic reality that is driving labour’s restive response; the cost of living has gone up.

In an article earlier this year, entitled “Is Zim entering a Wage Inflation Spiral?” I warned that in 2018, there is potential for increased labour relations issues on the back of the rising cost of living.

As a growing number of economists continue to point out that the CPI is no longer capturing the complete economic dynamics that are at play in the ordinary citizen’s daily life, as a consequence, it is therefore no surprise that we are facing a continuously increasing wave of wage related employer-employee spats right across many sectors of the economy.

The fact that prices are actually rising is completely ignored by the country’s statistical releases.

The latest Zimstat figures reported on April 16th 2018 reflect that the year-on-year inflation rate (annual percentage change) for the month of March 2018 as measured by the all items Consumer Price Index (CPI) stood at 2,68 percent, shedding 0,3 percentage points on the February 2018 rate of 2,98 percent.

This means that prices as measured by the all items CPI increased by an average of 2,68 percent between March 2017 and March 2018.

The obvious question in most ordinary people’s minds is “how is this possible?”

According to the Zimstat figures, prices as measured by the all items CPI increased by an average of 2,68 percent between March 2017 and March, 2018.

While 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 2,68 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 things that really matter to him.

While 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 goods and services, have risen by significantly more than the 2,68 percent suggested by Zimstat in an environment where prices of some basic goods have gone up by between 50 percent to 200 percent across many product lines.

Therefore relying 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 needs to be 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, 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 ameliorate 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.

Bear in mind social relations are already strained and any further stress will result in worsening social tensions.

It is now reality that we should expect labour to continue to press employers for better and 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.


Share This:

Sponsored Links