Road to Covid recovery still rocky and winding
By XN Iraki | November 30th 2021
On a drive to the countryside last week, I saw a billboard advertising some plots near Ol Kalou.
The town is the headquarters of Nyandarua County and goes by various variants, including Ol Kalau and Olkalau, but its correct name is Ol Kalou. The county is famous for milk and potato production, but not chips or cheese.
It was once home to a thriving Afrikaan community going by names such as Van Straaten, Van Rensburg, Kruger and De Waal. The founder of Flying Doctors, Anne Spoerry, once lived in the town too.
One of the bodyguards of famed American gangster Al Capone is also rumoured to have lived in Ol Kalou.
I called the number on the billboard and got an offer. “Can I get a Covid -19 discount?” I asked. “Covid is over and prices have recovered,” said the person on the other end of the line.
It seems to be a generally accepted notion that Covid-19 has been subdued and the economy is on the mend.
This is also supported by the data on new infections reported by the Health ministry. Increased vaccination and ending the curfew further seem to buttress this notion.
The new Omicron variant should not be allowed to derail the current momentum. Why is the deadly variant said to originate from South Africa as has been the case with many previous ones?
Increased traffic to restaurants and “joints” suggest there is a slow return to “normalcy.”
The fear that once gripped the country like a vice has subsided. May Omicron not rekindle this fear. Have we upped our research budget on viral diseases?
One would expect that an economic recovery during the Covid-19 pandemic would be good news, with more jobs and greater expectations. The gloom that once characterised our lives is lifting away like fog in the afternoon.
But there is the underside to the newly found optimism - inflation. The land seller alluded to this by mentioning that prices have recovered or have gone up.
Petrol and gas prices are the best indicators that inflation is real. Why is inflation on the rise at a time when the effects of the pandemic seem to be abating?
Remember demand for goods and services had gone down as economic activities reduced at the height of the pandemic. If you bought land or even stocks, you will benefit from their appreciation. We now feel confident to spend money.
Once people saw the possibility of Covid-19 ending, they started demanding more products and services, which logically caused price increases. Remember the money many saved and the investments they put off?
The rising prices are not just about increased demand. It’s a bit more interesting. Key economic players (read producers), distributors and retailers reduced their production or inventories as Covid-19 reduced demand.
Some of these investors may have left the market permanently. Once the demand rises, there are fewer suppliers and distributors, leading to disruptions in the supply chain. Demand has gone up, but supply has not.
It takes time to restart factories, hire new employees, get new contracts and customers, who could have switched to new products or services.
The mismatch between supply and demand has led to a general rise in prices, otherwise known as inflation.
There could be other factors such as speculation and the government’s appetite for raising taxes.
We should not be surprised by the rise in prices; it was expected. In some countries such as the US and the UK where governments doled out stimulus packages, including sending checks to their citizens, the extra demand could have raised inflation rates.
But we should not lose sleep over inflation. Modest inflation is expected and is indeed good for the economy, much like a spice.
However, high inflation is not good for the economy. Some countries have inflation bands, with the highest and lowest levels of inflation set by the central banks.
Deflation, where prices generally fall, would be an economic disaster. Who would produce goods only to settle for lower prices in the market?
The truth is that we have tried over the years to tame economic cycles - the rise and fall in key indicators, from economic growth to inflation. We haven’t succeeded because the key economic players are human beings with their instincts, prejudices, interests and expectations.
We cannot also predict shocks such as Covid-19. Our systems and traditions make it hard to adjust to shocks. It’s time we made our socio-political systems more resilient and flexible. Do our laws and regulations factor in shocks or consider the best-case scenarios?
Simulation will become one of the key arsenals for future managers.
Finally, increased spending towards the 2022 General Election could up inflation. Let’s hope there will be sufficient rain, and there will be no food shortage, which could push inflation higher.
Our key institutions including the Central Bank have their work cut out for them as the country continues to recover from Covid-19 and prepare for next year’s polls.
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