Times Of Swaziland: INFLATION HIKES AGAIN TO 8.7% INFLATION HIKES AGAIN TO 8.7% ================================================================================ BY SIFISO SIBANDZE on 16/01/2017 07:00:00 MBABANE – Inflation is a sustained increase in the general level of prices for goods and services; when it rises, every Lilangeni you own buys a smaller percentage of goods or services. Simply put, when it hikes, you buy less with more. To businesses, it hikes the cost of doing business, as it pushes up production costs. To consumers, it strains their spending patterns. When companies’ costs go up, they need to increase prices to maintain their profit margins. Increased costs can include things such as wages, taxes or increased costs of imports. That is what will be felt by both businesses and consumers for this month, going forward, as inflation has marginally increased to 8.7 per cent. For consumers, as the current rate of inflation is at 8.7 per cent, they need to make an extra 8.7 per cent a year more money to maintain their living standards. The escalation of the costs of doing business will be made possible by the fact that the cost of borrowing money from commercial banks and other financial institutions will shoot up as well. Borrowing costs are projected to increase this year, mainly because inflation has spiralled to 8.7 per cent for the month of December. In a space of two months, it jumped by five index points from 8.2 per cent (October) to 8.7 per cent in December, 2016. This will compel the Central Bank of Swaziland to review the bank rate upwards by 0.25 basis points to reach 7.25 per cent. A bank rate is the rate at which commercial banks borrow money from the central bank. Commercial banks will follow suite and increase their prime lending rate from 10.5 per cent to 10.75 per cent. In general, as interest rates are increased, more people would be unable to borrow more money. The result is that consumers have little money to spend, causing the economy to shrink and inflation to increase. The opposite holds true for rising interest rates. As interest rates are increased, consumers tend to save, as returns are higher. With less disposal income to spend as a result of the increase in savings, the economy slows and inflation decreases. A hike in the lending rate dampens businesses and consumers borrowing appetite. On the flipside, their cost of doing business balloons as the repayment installments swell as well. To be affected first would be banks, car dealers, retail shops, property developers, construction companies to mention a few. When the borrowing appetite wanes, banks see a drop in personal, housing and vehicle loans. This subsequently affects the other mentioned sectors. According to the Central Statistical Office (CSO), the increase of the inflation rate in December was due to higher headline inflation which was due to increasing annual rates of change reflected in December in the price indices for: recreation and culture, which increased from 5.4 per cent to 5.7 per cent in December 2016. Clothing and footwear increased from 8.9 per cent to 9.2 per cent in December 2016. Food and non-alcoholic beverages also increased from 18.7 per cent in November 2016 to 19.0 per cent in December 2016. The increasing rates were slightly counteracted by decreasing rates of growth in the price indices for: restaurants and hotels, which decreased from 2.5 per cent in November to 1.5 per cent in December. Furnishing, household equipment and routine household maintenance decreased from 9.0 per cent in November to 8.7 per cent in December. Miscellaneous goods and services decreased from 6.2 per cent in November to 6.0 per cent in December 2016. The outcome of the increasing inflation * Cost of borrowing money to increase as lending rate to hike * Hike in cost of doing business * Increase of goods and services prices * Dampened appetite for new personal, vehicle and mortgages * Decrease of consumer spending * High cost of living adjustments to be demanded by employees.