Updates on Rwanda's economy continue to indicate sustained growth, despite the fact that the situation is not without its challenges. However, the same cannot be said for people’s pockets in general.
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In the first half of 2023, the National Bank of Rwanda (NBR) stated that Rwanda’s economy grew by 7.7 per cent, drawing from 9.2 per cent recorded in the first quarter and 6.3 per cent in the second quarter.
However, Rwandans have encountered price hikes on the market month after month since 2022, with consumer prices reaching a peak of 21.7 per cent in November 2022, and a decline in 2023 to 12.3 per cent in August, though still high.
Economic growth as a measure of Gross Domestic Product (GDP) takes into account the total market value of all the finished goods and services produced within a country in a specific time period and is a scorecard of a country&039;s economic health.
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That’s why the National Institute of Statistics and other institutions look at agriculture, manufacturing production, infrastructure, services, imports, and exports, among others.
On the other hand, to measure economic development which looks at how this growth is reflected in people’s lives, institutions use various indicators to measure the improvement of livelihoods, including poverty reduction, improved healthcare, improved mortality rate, and access to education, among others.
On a daily basis, it is hard for people to notice economic development, especially when challenged with consumer price hikes on the market within a short period of time.
Consumer prices, also known as inflation, is the rate at which commodity prices increase over a specific period on the market. The ideal inflation should be between two per cent to eight per cent and a benchmark of five per cent, as per the central bank’s target.
To lay ground on understanding inflation, Prof Kasai Ndahiriwe, Director of the Monetary Policy Department, NBR, in an interview with The New Times, explained that in normal circumstances, consumer prices are supposed to increase over the years, though at a minimal pace that is reflected in economic growth but not a burden to consumers.
"As Rwanda, our target is to have a healthy inflation of five per cent. This means that if a commodity is priced at Rwf100, if it was to increase within one year, it would increase by Rwf5, making it Rwf105.”
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"Now, we have been faced with a fast-rising inflation since last year but it is slowing down, but still above the target benchmark. What is slowing down is the pace at which prices rise but not the actual prices.”
Why you shouldn’t totally wish inflation away
Ndahiriwe said it would be a scandal if consumer prices decreased, instead of gradually increasing over time because this would stiff investment at all levels.
"And we are not talking about those making big investments only, even a smallholder farmer would not be willing to invest his little money knowing that the value of the produce on the market would only decrease, they would rather keep their money,” he explained.
According to him, it means the only person who would be gaining is the one who keeps the money and anyone who invests would be signing up for loss. This would imply that the whole economy would be in jeopardy since there wouldn’t be any activity along the whole value chain across sectors.
"The decline of prices sounds good in a consumer’s ears but in monetary policy monitoring, we view it as an economic scandal. The slow rise of prices or being stagnant is okay but the problem is declining over a long period of time, even below the previous levels,” Ndahiriwe noted.
What happens once inflation stabilises?
During the presentation of central bank’s Monetary Policy and Financial Stability Statement, Governor John Rwangombwa said they expect consumer prices to bounce back to an average increase of 7.6 per cent at the end of the year and around five per cent in 2024.
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However, he pointed out that there are still risks associated with this considering the geopolitical tensions, effects of the Russia-Ukraine war, and climate change which remains the biggest challenge to the economic performance.
Once inflation comes back within the target band, Ndahiriwe explained that only some prices will reduce, especially foodstuff that greatly depends on agriculture performance, and fuel prices, while others will stabilise where they will be at that time next year, if the projection goes well.
For instance, he added that rent bills will not go back to where they were before 2022 but will stabilise at that point going forward, the same for a salary increment where it was adjusted.
Overall, the country records economic growth because the economy is functioning and evaluated on a regular basis. As Rwanda, just like the rest of the world, recovers from the aftermath of the pandemic and deals with climate change, the economy suffered and people’s pockets were not spared.