The Unseen Cost of Inflation: How Increased Prices Affect People’s Purchasing Power

The decline in inflation over the past four months has not been enough to offset the loss of people’s purchasing power. While some companies have reduced prices to stimulate sales, overall consumption is projected to drop by 8% this year, with real wages in the formal private sector falling by an average of 6.1%. According to estimates by Abeceb, disposable income and consumption may not recover until 2025.

The drop in purchasing power is due to a significant correction in relative prices of essential goods and services such as gas, electricity, water, public transport, and fuel, which have increased well above inflation rates. This has led to consumers spending much more on these bills and leaving less money available for other purchases. For example, while inflation was 290% as of March, prices for items like electricity, food, fuel, and medications increased by much higher percentages.

The loss of real wages disguised by a 6.1% decline actually represents a greater reduction in purchasing power when factoring in the rising costs of essential goods and services. This leads to a significant decrease in disposable income and subsequently affects consumer spending. To adapt, consumers are turning to local stores, lower-priced brands, and discounts while companies are focusing on cost optimization and offering more affordable options to attract budget-conscious consumers.

Retail sales experienced a 12.6% drop in March while car registrations fell by 35.1%, and motorcycle registrations declined by 43.3%. The impact of reduced purchasing power is evident across various sectors with both consumers and businesses adjusting their strategies to navigate the challenging economic conditions.

Despite these challenges, there is hope for recovery in disposable income and consumption in the coming years as the market adjusts to the changing economic landscape.

In conclusion: The decline in inflation over the past four months has not been enough to offset the loss of people’s purchasing power due to a significant correction in relative prices of essential goods and services such as gas, electricity