Cost of living mismatch: When bills exceed income

The fight against the cost of living is not over. While most retail prices are moving up, workers’ wages are remaining flat, making it hard for families to plan and budget. 

At the start of 2019, a litre of petrol stood at about Shs3,5000 while diesel cost Shs1,800. After Covid-19, this price is now averaging at Shs5,500 for petrol and Shs5,600 for diesel. 

The irony in this is that fuel drives the economy. From transporting food stuff, to running power producing generators, their increase in cost affects a myriad of products.

While most retail prices are moving up, workers’ wages are remaining flat. So, this mismatch between rising prices and stagnant wages is squeezing Ugandans.
Mr Latif Adiga spends Shs600,000 on rent for a three-bedroom house in Kisugu.
 
However, over the last two years, there have been conversations with the landlord to increase it by Shs100,000 on the premise that everything has increased in price. While Adiga has managed to sway him off for a while, he recently got a vacating notice notifying him about the estate’s remodeling project starting at the end of the year. 

For his two children, Adiga forks out Shs450,000 for school fees. “The cost was Shs600,000 but managed to negotiate it down to Shs450,000. My leverage was I either look for another school or they reduce the pay. The school is also near home to save me the transportation cost,” he says.

Feeding his household is another expense Mr Adiga cannot wish away. While his parents may send him a bag of irish potatoes or a sack of maize once in a while, he leaves Shs20,000 home every morning to cater to feeding. 

“On average, I spend Shs600,000 on feeding because there are also spices to buy which is done once a week or as the demand arises,” he says.
Transport is Shs6,000 for a boda round trip. However, in some instances, a walk to office does not hurt.

Mr Tom Atwesigye, who earns an average of Shs3m laughs at how he makes it through each month.
“I think Uganda is the only place where you earn less than you spend and still can’t tell where the money comes from,” he says.

While he desired a house not more than 10km from Kampala with three bedrooms, Mr Atwesigye got a two bedroomed house at Shs750,000 per month. 

“It had general amenities and the second bathroom seemed a corridor-turned-bathroom. However, the landlord wanted to increase the pay by Shs150,000 hence moving my family to an almost complete house. Though the floor was yet to be completed, I figured that it was cheaper to move in,” he says.

Though not a pleasant move for the other members, it has allowed him handle other costs such as school fees and transport at less pressure.

But with the increasing demands, more changes were still in the pipeline. For instance, he moved the children to a school closer to home. Though that meant suffering an increment from Shs750,000 to of Shs900,000, he cuts back on transport costs. 

“I was paying Shs600,000 for shuttle fees per child, then hired a driver whom I paid Shs300,000 per month with Shs30,000 of fuel per day but saw no difference in costs. With the school switch, I drop them off in the morning while the maid picks them up in the evening. That dropped my transport costs to Shs30,000 only,” he says.

However, feeding has become a thorn in the side. For instance, previously, he spent between Shs120,000 and Shs150,000 for a sack of charcoal coupled with Shs120,000 for gas refill but this only lasted for one or one-and-a-half months. 

“Feeding has become more costly as a 10kg bag of posho is now Shs25,000 from Shs15,000. We have opted for a kilo at a time for Shs3,5000 from Shs1,200. A small bunch of matooke is now at Shs20,000 from Shs8,000. We resorted to fingers which were previously 10 for Shs1,000 but now it is two for Shs1,000. 

A kilo of beans is now at Shs5,000 from Shs2,000 while sugar is at Shs6,000 from Shs3,000,” he says.
Mr Atwesigye says the increment in product prices has made manufacturers scrupulous as the bread is not only costly but also of poor quality than before. 

Cost of living crunch
The fight against the cost of living isn’t over. Although inflation is trending at low levels, cost of living is rising beyond prices.

Mr Fred Muhumuza, a renowned economist, says the cost of living is dependent on many things on the consumption side (cost of things you buy) which could be due to preference, taste, or necessity. 

“Economics will be concerned with basic necessities of life such as food, housing, clothing, health, transport and communication, education, and fuel/energy. Even among these, focus in on ensuring people can afford the basic options not luxury,” he says. 

But pay cheques are not keeping up with the rising cost of living.
Even basics are getting expensive yet incomes (which is the other critical factor in cost of living) are being eroded for many with low incomes. Prof Muhumuza says those who earn high salaries are often not a concern of policy when costs rise.

“For the low income groups, the rising cost of living will mean less welfare and increased vulnerability to diseases, in case people do not eat well. Reduced consumption can also affect the factories and other service providers since general demand is key to economic growth,” he explains. 

Mr Kenneth Egesa, the director of the communications department at Bank of Uganda (BoU) says the cost of living can be measured by changes in price levels also referred to as inflation. 

Inflation averaged 4.1 percent during 2020-2022 and is projected to average at 5.8 percent in 2023. Income per capita growth, on the other hand, averaged at 5.2 percent during 2020-2022 and is projected to rise by 6.3 percent in 2023. 

“Since the difference between income per capita and inflation in 2023 is smaller than it was in the 2020-2022 period, this suggests that on average, the national welfare will improve by a smaller amount in 2023 assuming income inequality does not increase,” he says.

Looking ahead, Mr Egesa says growth of income per capita is projected to average at eight percent during 2024-2028 while inflation is projected to average at five percent during the same period. 

Unsatisfied
Mr Adiga frowns at the cost of living figures saying they do not make sense to him. 

“These numbers make sense for those whose work is to look at numbers. However, if Shs20,000, and not Shs10,000 is needed to sustain my home, I don’t know what those numbers are speaking to as they do not make sense to me,” he says.

Way forward
Ms Monica Kasirye Kavuma, a financial advisor at Financial Fitness Spa, says the economy goes through a cycle. There are times when it is thriving hence a lot of government expenditure, which steers consumption and production. However, some times there is no money in circulation.

“Be mindful of the economic context and how it affects us. That will help you appreciate that despite working for a company, in depressed times, it may not be able to increase your salary to your expected levels. If inflation is nine percent, and the company increased your salary by five percent, it won’t help, because the cost of living is still high,” she says.

Ms Kavuma thus urges people to look for ways to increase their sources of income. One of the low hanging fruits is passive income streams that you can invest in with the little you have and build an income.

“The government is borrowing from individuals, so you can go to an equities market as the Capital Markets Authority is trying to boost investment in that space. It could be through treasury bonds and you do not have to do much saving, learn the dynamics as there are experts there to do the work,” she says.

Adding, “Such ventures require patience hence not the source of quick money such as school fees.”

With the gig economy, there are many opportunities and while some salaried people cannot ably hold both balls up, Ms Kavuma says there is a lot one can do. Some of these are weekend gigs such as an event decoration job that does not interfere with your 8-5 job. 

You can build a skill that you can later monetise. 

For instance, public speaking, and video editing can be learned.
 “There are several free online courses that one can dig into to learn a skill or two. However, these should be those that solve a problem around you as that is what will make you marketable,” Ms Kavuma says. 

For one with an urgent need for money, such as paying rent, Ms Kavuma advises on trimming on expenses, citing that as companies are cutting back on costs, so should individuals. 

“Careful budgeting helps in understanding your income and expenditure flows and also weed out the silent income parasites. For instance, carefully tracking your expenditures may point you to the many times you buy data hence choose to cut back on it. It could be that you eat out more hence substitute that with home cooked meals. Such will help in balancing out the income to your needs.

Continuously increasing prices
Mr Adiga is concerned that even when Covid-19 and its shocks are reducing, the cost of goods and services is not abating. Rather, prices are simply increasing.

Prof Muhumuza says the concern is more on the speed of increase of prices (inflation) and less (but not entirely zero) on the level of prices. 
“Prices rarely revert to their old level. Just look at the exchange rate (around Shs1,000 in the mid-1990s and now over Shs3,750). 

Such trends feed into all other costs and keep prices rising. Even salaries keep going up. Some items such as food might go down but then get back up over a season. Over the medium to long-term, prices will always go up,” he says.