This paper set out to calculate and compare “plutocratic” inflation to “democratic”
inflation in Tanzania using monthly price data from 2003 to 2006 and the 2000/2001
National Household Survey data with the view to assess their impact on the poor. The
paper first compares national inflation for plutocratic weighted price index against
the inflation based on democratic weighted price index. Then the paper calculates
“plutocratic” and “democratic” inflation for poor households and compares this to
the non-poor households. Finally, the paper calculates both the “plutocratic” and
“democratic” inflation for the households in the lowest quintile of consumption and
compare to similar inflation for the highest quintile.
The paper finds that the plutocratic weighted inflation tends to be more
sensitive to the changes in the prices of goods that are mostly consumed by the rich,
while the democratic weighted inflation tends to be more sensitive to changes in the
prices of goods consumed by the poor. The paper further finds that inflation rates
based on “plutocratic” weights is generally lower than the inflation rate based on
“democratic” weight, suggesting that the official inflation rate, which is based on
the plutocratic weighting system, understates the inflationary burden to the poor In
particular, the democratic inflation is found to be more pro-poor than plutocratic
inflation rate. For this reason, the paper recommends that “democratically weighted”
inflation should be preferred to “plutocratic weighted” inflation.