The Purchasing Power Dilemma: The Slow Recovery from Inflation and Declining Wages

The decline in inflation over the past four months has not been enough to offset the decrease in people’s purchasing power. Despite some companies reducing prices to boost sales, consumption is still expected to fall by 8% this year. Real wages in the formal private sector are declining by an average of 6.1%. According to estimates by Abeceb, disposable income and consumption may not fully recover until 2025.

One of the main reasons for the decline in purchasing power is the significant increases in prices of key goods and services such as electricity, gas, food, and transportation. These price hikes have far exceeded the rate of inflation, leaving people with less money to spend on other products and services.

For example, while inflation was at 290% in March, the prices of items like food, medication, and transportation increased by over 300%, significantly impacting people’s budgets. As a result, many are cutting back on expenses, leading to a decline in sales for supermarkets, restaurants, and other businesses.

To cope with this challenging economic environment, consumers are turning to local stores, buying second or third brand products and taking advantage of discounts and promotions. Companies are optimizing costs by negotiating with suppliers and adjusting their sales strategies to cater to more budget-conscious consumers.

The impact of reduced purchasing power is also evident in the decline in sales of appliances and other big-ticket items. Retail sales in general have been negatively affected with car and motorcycle registrations experiencing significant drops. The road to economic recovery will likely be long and require significant adjustments by both consumers and businesses alike.