Is the phenomenon of deflation inevitable in Africa?

Africa has seen one of the largest increases in the price of goods and services over a number of years and this trend seems to continue unabated. The inflation rates of countries such as Zimbabwe (75.86%), South Sudan (56.10%), Sudan (44.6%), Liberia (23.3%), Sierra Leone (17.46%), Angola (17.36%), Egypt (14.1%), Ethiopia (12.6%) and Nigeria (11.37%) are all in the double digit range with no plausible economic movement to show that these high inflationary levels may reduce. The question becomes, at what point does the population decide that the price increase far outweighs the possible utility gains from the goods and services? This phenomenon seems to not have been envisaged by the businesses that supply the goods and services which only leaves the defensive goods and services safe from a demand re-balance at an astronomical scale.

The fact is, the level of inflation in Africa will inevitably result in significant deflation as the population within Africa will either decide that the goods and services provided are too expensive for the utility they provide or, they may find alternative mechanisms to access to the same goods and services at an affordable rate. In both events, deflation is inevitable at a rapid rate and may cause systematic risk to the corporate structures in those related African countries.

At same point, when housing becomes too expensive, people will opt to build houses themselves slowly over years, when banking becomes too expensive, people will use alternative banking products (MPESA), when food becomes too expensive, people will opt to buy food beyond their borders, when transportation becomes too expensive, people will buy into alternative platforms with more convenience (Uber, Bolt), when education becomes too expensive, people will opt to take their children back to state schools and when services become too expensive, people will eventually opt for self-service options resulting in additional losses in jobs within the services sector.

The price of goods and services will at some point re-balance. Salaries do not move at the current rate of inflation levels (typical in several African countries) anywhere in the world so a re-balance will naturally take shape and companies that are planning for this re-balancing will be sustainable enough to survive. The African medium-business and corporate sector needs to be mindful of deflation in Africa in order navigate their pricing as well as their cost structure. PEafrinsights is of the view that sectors that are defensive in nature (i.e. healthcare, basic goods) will be largely resistant to this deflationary movement.

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