Since the beginning of the year, particularly from March 2022, the world has been witnessing an increase in the general level of prices on the market. Prices for basic goods and services, including food, energy, transport, housing and clothing, have thus become more expensive. This general surge in prices, which is not limited to imported goods, raises questions and concerns among consumers. Why inflation and how to explain it? What are the measures taken by the central bank and Togo to fight against this phenomenon which has repercussions on all economic sectors, households and businesses? The answer to these concerns through these lines.
Inflation is defined as an increase in the general price level of goods and services. This situation leads to a decline in consumer income and purchasing power. Indeed, when the price of a product increases, while the consumer’s income remains unchanged, the latter reduces the quantity of goods he consumes. For example, a consumer spends 1000 F to buy soap, at the unit price of soap of 200 F. When the price of a unit of soap increases and goes from 200 F to 250 F, he will not be able to buy only 4 units. The price increase led to a reduction in the quantity of soap purchased, which went from 5 units to 4 units.
In theory, inflation originates from the imbalance between supply and demand for goods and services. In other words, when there is an imbalance between supply and demand for goods and services and the adjustment cannot be made by supply or demand, then this adjustment (i.e. i.e. to bring the balance back) is done through prices. In other words, if demand increases, for the equilibrium price to be maintained, supply should be increased so as to maintain the equilibrium price, otherwise prices should increase. In this case, we speak of a demand shock. If the imbalance is due to supply, we speak of a supply shock.
The different types of inflation
Inflation is measured annually and is presented as a percentage. When inflation increases, the purchasing power of each FCFA you own decreases accordingly. According to experts, there are several forms of inflation: Commodity Cost Inflation, Labor Cost Inflation, Interest Cost Inflation, Consumer Inflation, l’iimported inflation, etc.
In the case of imported inflation, it is linked to foreign countries and foreign trade. This is the situation the whole world is currently experiencing. The price level of goods and services of imported products has increased significantly. The increase in the cost of these imported products has repercussions in all sectors of the economy and affects households as much as businesses in importing countries. This phenomenon also occurs during a sharp rise in the prices of energy and agricultural products on world markets.
Fight against inflation
According to economists, theoretically, to fight against inflation, two tools are made available to the state to help bring about stability and development. Fiscal policy, conducted by the State, and monetary policy, implemented by the Central Bank.
Fiscal policy consists of using the State budget (through action on public expenditure and compulsory levies) to achieve certain objectives chosen by the government, in order to regulate an activity. In the context of inflation, the government uses its policy of tax revenues and expenditures to influence the aggregate demand and supply of goods and services and thus fight against soaring prices.
Monetary policy, for its part, is another instrument that can be chosen instead of or in addition to budgetary policy, to act on the economy. Monetary policy is decided by the central bank (generally independent of political power), whose mission is to control and finely regulate the quantity of money in circulation in the economy (money supply). The Central Bank can pursue a policy of increasing the money supply and reducing interest rates or it can decrease the money supply and increase interest rates. Thanks to the key interest rates, the Central Bank influences the interest rates of commercial banks and, through this, the cost of credit to households and businesses. If key rates fall, interest rates also fall, allowing households and businesses to borrow more from their bank (due to the lower cost of credit), which contributes to money creation. Moreover, by lowering its main key rate, the Central Bank facilitates the refinancing of banks. These will pass on the decline to the interest rates they offer to households and businesses. Faced with the magnitude of the inflation crisis, it is possible to use a mixed policy. That is, combining fiscal and monetary policy.
Current inflation and measures of building resilience in Togo
According to economic experts, the situation we are currently experiencing in the world is imported inflation in the vast majority. It is the increase in the cost of imported products that affects households and businesses. The cost of producing imported goods or services has increased by passing it on to consumers.
For information, according to the BCEAO’s monthly statistics bulletin, June 2022, published on July 29, the price index for products imported by WAEMU countries increased by 48.6% over a year, accelerating compared to May 2022 (+46.2%). The most significant increases are noted in wheat (+73.1%), rice (+44.8%), oils (+39.6%) and sugar (+24.2%).
In Togo, to fight against the current inflation, the government announced in April 2022, a series of measures to strengthen the resilience of the populations.
The first measure is ” suspension of reimbursements of the advance of one month’s salary granted at the beginning of the year to civil servants in the public and parapublic sectors and to retirees from May 2022 until the end of the year. The suspension for three months, renewed, of the payment of taxes in the markets. Capping the price of local products (maize, sorghum, beans, millet and rice) and imports (oil, milk, wheat flour, etc.); products exempt from VAT.
The government has also decided to lower the interest rates of the services of the FNFI (National Fund for Inclusive Finance) by two points, in particular in the most vulnerable areas. This reduction is valid for all credits obtained since 1is January 2022. In order to support the purchasing power of the population, the government has also decided, as of May 1, 2022 and for a period of 3 months, to suspend the payment of market ticket taxes on all markets in the country. . To curb the difficulties in the supply of wheat flour, the Togolese government encourages bakers to opt for local flours in the production of bread and its derivatives.
Favorable monetary conditions
The BCEAO, for its part, in its monthly statistics bulletin for June 2022, decided to raise its key rates by 25 basis points, in order to promote a gradual control of inflation in the target zone, an essential condition for growth. healthy and inclusive economy. Thus, the minimum bidding rate for liquidity injection tenders increased from 2.00% to 2.25% and the marginal lending window rate from 4.00% to 4.25% as of June 16, 2022. In the first quarter of 2022, the BCEAO indicated that monetary conditions remained favorable, in line with the continued accommodative monetary policy stance of the BCEAO. Refinancing requests from Union banks were served at the minimum rate of 2.00%. The Central Bank also renewed, in 2022, its initiatives launched in 2021 relating to Recovery Bonds (OdR) and Support and Resilience Bonds (BSR).
In short, faced with everything that is happening on the market, especially with the surge in imported goods and services, it is necessary to promote local products. But many challenges remain. Many cereals and plants grown in the countryside never reach the cities, due to a lack of storage facilities and adequate distribution channels. Once on the market, these products must be controlled to avoid speculation. It also remains to convince consumers to put these local products and services at the heart of their cooking, instead of imported products. According to economists, support for the private agri-food sector is also necessary so that it takes hold of these traditional products and contributes to their development.