Since the devaluation the kwacha (10 percent last August and 49 percent around three months ago) and its subsequent flotation, pressure has mounted from the labour market for employers to increase wages as inflation pushes the cost of living beyond their pay grades.
It is common knowledge, and this has been a historical fact in Malawi, that the Reserve Bank of Malawi (RBM) meets excess inflation with higher interest rates to discourage borrowing and consumption.
The combination of a falling kwacha, galloping inflation and running away interest rates cannot be good for any economy, let alone firms and households. This is further worsened by deteriorating real wages; hence, the daily strikes in both the public and private sectors.
Why a central bank would employ such a destructive policy mix that feeds a highly toxic soup to an already suffering population is something that has bothered me ever since the new monetary policy team at the RBM zealously went to work with their new-found limitless powers.
The middle class continues to suffer as employers, with governmentâ€™s tacit support, refuse to raise salaries in tandem with inflation trends at the minimum or in line with the major factor that has pushed prices up since the last quarter of 2012â€”the kwachaâ€™s deteriorating purchasing power.
I understand that RBM is worried about a wage-price spiral in which, at least according to the RBMâ€™s thinking, higher wages lead to higher price increases and which then provokes even higher wages, a situation that the current inflation-obsessed monetary policy leadership finds unacceptable and they should, but only if it this assertion of a price-wage spiral can be proved to be true.
While I accept that wages are an important variable in determining prices since they impact firmsâ€™ marginal costs, their net impact is not large enough to use it as basis for predicting inflation.
Someone from the central bank must show us systematic evidence that there is a strong relationship between wage growth and higher inflation in Malawi, otherwise, authorities could simply be punishing workers based on a theory that has been debunked by several economists.
In fact, suppressing wages at a time when the current monetary policy is to actively tame inflation through bank rate hikes is a double-edged sword to the working class that mortally wounds households and may lead to a sharp contraction in the economy, or even a recession.
Real wages have fallen so sharply in the country that more and more people, including those with fairly decent jobs, are finding themselves into lower poverty bands.
As real wages have been falling, the pressure on peopleâ€™s fast disappearing disposable income has been huge and mounting every day.
In other words, while the salary has largely remained static and eroded in terms of the real value, interest ratesâ€”deducted on the same unchanged incomeâ€”have almost doubled over the past two months.
The price of recurrent household goodsâ€”which also depends on the same static incomeâ€”have also doubled, shrinking an already squeezed resource envelop for the household.
Tuition fees, which also depend on the same salary that is fast losing its purchasing powerâ€”have also nearly doubled.
Then there is the joke of the week in which the minimum wage has jumped by roughly 100 percent. I donâ€™t know where policy makers live, but a good number of the folks who will benefit from this hike in the minimum wage (domestic workers and/or casual labourers) are mostly employed by the middle class, whose salaries are being suppressed.
How does the government, which is now siding with employers to prevent wage increases to reasonable levels, expect this person to survive? Obviously, for someone like me, it is better that I fire the garden boy and probably the guard.
I will remain with the maid for the sake of my children. That is two people out of work. Several members of the squeezed middle class may have the same view. How many domestic workers will be sent on the streets? How many social problems will these jobless folks create for society in general and the government in particular?
Even getting rid of these domestic workers will not end the extra burden that the middle classâ€™s stunted salaries have to bear, causing more suffering.
The RBM knows that the problems we are going through today have little to do with households and firms.
It was simply bad policy of growing the government debt too much without supporting the private sector to create the wealth that would support government.
Government also kept the kwacha artificially strong for too long in support of cheap imports that drained the little forex we had without replenishing it at an adequate pace. These are the big picture issues authorities have to deal with, not the quick fixes that target small people with endless pain being the only result.