Rwanda’s inflation in September was quoted at 20 per cent by the Ministry of Finance and Economic Planning. This is the highest in a century. And with everyone being hit hard in the pocket, the Chamber of Deputies last week forced the Minister of Commerce into a marathon session to explain why commodity prices remained high even after the international oil prices fell. Last month’s inflation is even likely to be higher than September’s, but in November it is expected to drop, following government’s cut in fuel prices. Food, energy, housing, transport and other products have increased in price. Besides limiting one’s purchasing power and eroding household savings, the implication is that loans are costing more than they were, as inflation causes interest rates to rise. Investment returns may fall as companies growth slows due to reduced demand, which could force companies into cost cutting strategies as inflation cuts into their profits. If it persists, downsizing becomes an alternative for companies. So job losses follow. But fruitful efforts to mitigate the inflation effect will depend on the safety of the account in which individual savings are held. Those with fixed rate loans like mortgages face less exposure to losses since banks don’t adjust interest rates when inflation rises. As result borrowers end up repaying loans in francs whose value is less than the one they borrowed at. But for those trying to acquire loans, there is much exposure to loss because as interest rates go up with lenders attempting to get profit margins which compensate for the inflation risk. It is also particularly damaging for pensioners and fixed deposits which generally generate fixed incomes. But you could hedge against it if your fixed payment is indexed to inflation, something I doubt is common here. The best way to beat off the effect inflation on your savings is to invest. But it requires a return on investment above the inflation. Contact: gahamanyi1@gmail.com
