Perception of Inflation and Effect of Inflation on the Salariat in Ethiopia

Abstract

Understanding the gap between perceived and reported inflation have various implications both for the policy makers and the general public, since its divergence can: undermine the official statics credibility, erode the allocative efficiency of price system and influence future expectation of prices (Del Giovane et.al, 2008). Similarly the rich are better able to protect themselves against, or benefit from inflation than are the poor is a long established argument and was analyzed using data obtained from official sources. On the other hand economists like Stanley fisher, Martin Ravalion and Robert .J. Shiller try to capture the effect of inflation on the poor in an indirect way using survey on how the poor was concerned and dislike inflation. This paper also tries to capture the perception of inflation of the salariat and its effect using an indirect way from survey of 300 salariat group from different parts of Ethiopia.   In Ethiopia since the economy was not indexed and inflation was highly persistence in the past ten or more years the salariat group are highly affected. For example when we see the nominal income of those groups it was increased only 74% from 2003 to 2013 whereas average yearly cumulated inflation in the same years was increased by about 176%. Therefore this paper also tries to capture their perception and effects of those highly affected group of the society.   A questioner survey of 300 people was conducted and finds that sex and age have made no difference on inflation perception whereas income, occupation, and others have made differences among people on inflation perception. Similarly people relatively with less income are more concerned about inflation than relatively higher income.

Keywords: inflation perception, concern on inflation, salariat, Ethiopia