THE EFFECTS OF INFLATION ON POOR PEOPLE IN HARGEISA CITY

SOMALILAND

_____________________

A Senior Essay Paper submitted to Department of Accounting for partial

fulfillment of the Requirement for Award of

BA Degree in Accounting

__________________

Advisor: Mr: Hassan Muse

By

Abdirahman Mohamed Farah

Hamse Hassan Samatar

_____________

Gollis University

Faculty of Management Science and Economics

Department of Accounting

GU Sep, 2022

I
 DECLARATION
Hereby declare that this submission is my own word and to the best of my
knowledge and belief it contains no material previously published or written by
another person nor material which has been accepted for the award of any other
degree of the university or other institute of higher learning, expect where due
acknowledge has been made in the test and reference list.
Name: Abdurrahman Mohamed Farah
Signature____________________
Name: Hamse Hassan Samatar
Signature_____________________
This is to certify that this thesis is the original work of us, carried out under my
supervision.
Name of the advisor: Mr. Hassan Mousse.
Signature: _________________
Date: ____________________

II
 DEDICATION
Abdirahman Mohamed Farah
I dedicate this thesis paper to my dear Mother Sure Ali Odawa, my dear Father
Mohamed Farah Jibril and all family dear sister Sagal Mohamed Farah, my brothers
Muse Abdirahman Saed and Khaddar Abdirahman Saed that are support me
morally, finance side and encouraged me, secondly my dear friend Hamse Hassan
Samatar we were take same path and worked together to reach our goal. I didn’t
forget my super visor my best lecturer in time I was in Gollis University
Mr. Hassan Mouse.
Finally, I would like to thank for everyone who helped me to reach my short-term
future dream.
Hamse Hassan Samatar
I dedicate this thesis paper to my Family specially my mother, Nura Muse Dibad
and my Father Hassan Samatar Jama who has been supported me for whatever I
want through my Brother Ali Hassan Samatar and he my biggest teacher and my
guidance of important stage in my life, he made easy and with me whole my journey
of my educational background which was my first ad biggest dream forever. Also,
my dear teacher and supervisor Hassan Mouse for tireless effort and commitment,
Finally, I would like to thank for everyone who helped me to reach my short term
future dream

III
 APPROVAL
This is certify and recommends for acceptance by the Gollis University this
dissertation titled “The effect of inflation on poor people in hargeisa, City
Somaliland “partial fulfilment of the requirements.

Name of Advisor: Mr. Hassan Mousse.

Signature: _________________

Name of Dean Prof: Abdirizak Ahmed Ali

Signature_________________

IV
 ACKNOWLEDGEMENT
All praises and thanks are due to Allah (SWT) the creator of everything and the
king of this universe and the later one, and the most merciful, who gave us the
courage, endurance, willingness and ability to complete this paper successfully.
First we would like to express my appreciation, thanks and extend my indebted
gratitude to my genuine advisor, Mr. Hassan mouse which the work didn’t continue
without his tireless effort and constructive advice, patience, and rich contribution,
and this paper would not have succeeded without him encourages. Therefore, this
paper is the result of two people. We want to thank him for his guidance not only
for this paper but also for our future life. Lastly, we would like to thank, gratefully
acknowledgement my teacher and also the head of the Accounting Department Mr.
Abdirizak Ahmed Al for his morally and technically helpful and preparing the
necessary guidance in our university career and the possibility to complete this
research paper. To all our colleagues in the struggle through the Bachelor of
Accounting and finance 2021/2022 class, our success deserves to be shared with
you. You offered all the support needed to see us succeed and makeup for my
challenges and you contributed a lot of knowledge and skills for our development.

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Table of Contents
DECLARATION......................................................................................................................................... II

DEDICATION............................................................................................................................................ III

APPROVAL ............................................................................................................................................... IV

ACKNOWLEDGEMENT .......................................................................................................................... V

CHAPTER ONE ......................................................................................................................................... 1

INTRODUCTION....................................................................................................................................... 1

1.1 Background of the study .................................................................................................................. 1

1.2 Problem Statement............................................................................................................................ 3

1.3. Purpose of the study......................................................................................................................... 4

1.4 Research questions ............................................................................................................................ 4

1.4.1 Main question............................................................................................................................... 4

1, 4.2 Specific research questions ......................................................................................................... 4

1.5. Objectives of the research ............................................................................................................... 4

1.5.1. General objectives ....................................................................................................................... 4

1.5.2. Specific objectives ...................................................................................................................... 4

1.6. Scope ................................................................................................................................................. 5

1.6.1. Time scope .................................................................................................................................. 5

1.6.2. Geographical scope ..................................................................................................................... 5

1.6.3. Content Scope ............................................................................................................................. 5

1.7. Significance of the study .................................................................................................................. 5

1.7.1. To Somaliland Government ........................................................................................................ 5

VI
 1.7.2. To future researchers and scholars .............................................................................................. 6

1.8. Description of the study ................................................................................................................... 6

1.9. Operational definitions of key Terms............................................................................................. 6

CHAPTER TWO ........................................................................................................................................ 7

LITERATURE REVIEW .......................................................................................................................... 7

2.0. Introduction .......................................................................................................................................... 7

2.1. Inflation............................................................................................................................................. 7

2.2. Types of inflation on the basis of speed and intensity ................................................................... 7

2.2.1 Creeping Inflation ........................................................................................................................ 7

2.2.2 Galloping Inflation ....................................................................................................................... 8

2.2.3 Hyperinflation .............................................................................................................................. 8

2.3. Causes of the inflation ................................................................................................................... 10

2.3.1 Demand Bull Theory.................................................................................................................. 10

2.3.2 Cost Push Theory ....................................................................................................................... 10

2.3.3 Excess Demand Theories ........................................................................................................... 11

2.3.4 Market Power and Inflation ....................................................................................................... 12

2.4. Measurement of inflation .............................................................................................................. 12

2.5. The link between poverty and inflation ....................................................................................... 13

2.5.1. Consequences of High Inflation ................................................................................................ 13

2.5.2. How Inflation Contributes to Poverty ....................................................................................... 13

2.5.3. Poverty and Inflation Inequality ............................................................................................... 14

2.6. Measurements of poverty in Somaliland ..................................................................................... 14

VII
 2.7. Theoretical Framework: ................................................................................................................... 15

2.7.1. Monetary Theory of Inflation ................................................................................................... 15

2.7.2. Structural Inflation Theory........................................................................................................ 16

2.8. Empirical Evidence:....................................................................................................................... 17

2.8.1: The effects of inflation to the poor people ................................................................................ 17

CHAPTER THREE .................................................................................................................................. 18

RESEARCH METHODOLOGY ............................................................................................................ 18

3.0. Introduction ........................................................................................................................................ 18

3.1 Variable Definitions ........................................................................................................................ 18

3.2 Research Design. ............................................................................................................................. 19

3.3 Sampling Procedure........................................................................................................................ 19

3.3.1 Population .................................................................................................................................. 19

3.3.2 Sample frame ............................................................................................................................. 20

3.3.3. Sample Unit .............................................................................................................................. 20

3.3.4. Sample Size ............................................................................................................................... 20

3.3.5. Sampling Techniques ................................................................................................................ 21

3.4. Data Collection Techniques........................................................................................................... 21

3.5. Sources of Data............................................................................................................................... 22

3.5.1. Primary Data Sources................................................................................................................ 22

3.5.2. Secondary Data Sources............................................................................................................ 22

3.6. Data Presentation and Analysis (tools) ........................................................................................ 22

3.7. Data Analysis and Interpretation ................................................................................................. 23

VIII
CHAPTER FOUR..................................................................................................................................... 24

FINDINGS AND DISCUSSIONS ............................................................................................................ 24

4.0 Introduction ......................................................................................................................................... 24

4.1 Findings of the study ......................................................................................................................... 24

4.1.1 Background of the respondents .................................................................................................. 24

CHAPTER FIVE ...................................................................................................................................... 39

DISCUSSION/INTERPRETATION, CONCLUSION AND RECOMMENDATIONS .................... 39

5.0. Introduction ........................................................................................................................................ 39

5.1. Discussion........................................................................................................................................ 39

5.2 Conclusion ....................................................................................................................................... 40

5.3 Recommendations ........................................................................................................................... 40

APPENDIX A ............................................................................................................................................ 42

QUETIONAIRE........................................................................................................................................ 42

APPENDIX B ............................................................................................................................................ 45

REFERENCES .......................................................................................................................................... 45

RULE OF THUMB ......................................................................................................................................... 47

HARGEISA MAP .......................................................................................................................................... 48

Table 1: 3.3.2............................................................................................................................................... 20

Table 2 3.3.4 ................................................................................................................................................ 21

Table 3 4.1 ................................................................................................................................................... 24

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Table 4 4.2 ................................................................................................................................................... 25

Table 5 4.3 ................................................................................................................................................... 25

Table 6 4.4 ................................................................................................................................................... 26

Table 7 4.5 ................................................................................................................................................... 27

Figure 1:4.1 ................................................................................................................................................. 28

Figure 2:4.2 ................................................................................................................................................. 29

Figure 3:4.3 ................................................................................................................................................. 30

Figure 4:4.4 ................................................................................................................................................. 31

Figure 5:4.5 ................................................................................................................................................. 32

Figure 6:4.6 ................................................................................................................................................. 33

Figure 7:4.7 ................................................................................................................................................. 34

Figure 8:4.8 ................................................................................................................................................. 35

Figure 9:4.9 ................................................................................................................................................. 36

Figure 10:4.10 ............................................................................................................................................. 37

Figure 11:4.11 ............................................................................................................................................. 38

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 CHAPTER ONE

INTRODUCTION
This chapter will cover the following areas, the background to the study,
problem statement, purpose of study, research questions, objectives, scope of the
study, the significance of the study, description of study area, and definitions of key
terms.
1.1 Background of the study
Inflation is a rise of prices for goods and services Generally In a certain
period of time. Some researchers have found that inflation hurt the poor more than
rich. (Mankiw 2015). As the percentage of inflation increases, the cost of all
commodities also increases. It can also be viewed as a fall in the real value of money
being a reduction of purchasing power of consumers and thus making poverty is
very high. Evidently it is estimated that the price rise of 2008 led to an average
increase of poverty rates of 4.5 percentage points (using the poverty line of 1 US-
Dollar, corrected for purchase power parity, PPP). If this result is extrapolated to
the global poor population of 2.3 billion people, another 100 million people to those
who live in absolute poverty may have added. Compared with the 75 million
additional undernourished people estimated by FAO, and considering that
correlation between the percentage of undernourished people and the headcount
ratio of poor is about 0.75, this figure may be on the pessimistic side, but the order
of magnitude is plausible (Ivana and Martin, 2008). According to The Daily News
(2010) Report it is true that unscrupulous shopkeepers have taken advantage of the
situation by raising prices as they haven’t any other choice to meet their own.
Carlos (2009) concludes that inflation is a global matter of concern because large
segments of population have been affected while the marginalized sectors are
comparatively more affected where a larger proportion of income is destined
towards purchasing edibles.
Easterly and Fischer (Easterly & Fischer, 2000) argue that the rich can protect
themselves or benefit from the effect of inflation better than the poor. The rich have
better access to financial instruments which helps protect them from inflation

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effects better than the poor. Poor are more likely to have larger share of their money
in cash. Also the poor may depend on state-determined income more than the rich,
which is not influenced by inflation, consequently, inflation will reduce their real
income. Therefore, they found supporting evidence for their argument that inflation
hurts the poor more than the rich.
This study aims to examine the effect of inflation on poor people, also inflation
increases the poverty rate and impacts economic developments.
Studied 1957-1991 Collective state data to investigate the causes of poverty and
found that higher rates of inflation results in higher poverty. Also there is a positive
relationship between inflation and poverty while inflation leads to higher poverty
rates. (Blinder & Blank, 1985)
The effect of inflation has made it very difficult for many African households have
to get their basic necessities which have gone beyond their purchasing power.
African households therefore resort to loans to satisfy their needs, which further
over burden their family economy, because they have to pay their loans with
interest. The high level of inflation causes instability in an economy.
For instance (Kahn 1984) studied the effects of inflation on the poor in South
Africa and determined that the inflation hurt the poor most. South
Sudan experienced inflation which resulted from several factors: government
expenditure rapidly increased as the government growth rate was estimated at above
30% while the large government budget was estimated to increase more than 50%
from the 2011 budget to fiscal year of 2012, which led the government to print more
banknotes. This influenced the exchange rate which rose against US dollar, and the
value of the South Sudanese pound decreased. Demand and supply were also
another factor that led to inflation. On the demand side, more than 200,000 people
returned to the country, while the supply side decreased due to the internal and
external trade barriers. The monthly price surveys of goods categories conducted
by the National Bureau of Statistics regarding the food prices inflation in 2011
found that there was a high inflation of food and service prices across all categories.
This inflation typically hurt the poor most due to the higher share of food in the
poor’s consumption commodity basket (World Bank, 2012).

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Somaliland has no an effective economic system that works properly, therefore it
is difficult to explain any component of the economic philosophy such as the rate
of inflation and unemployment, the poverty rate in urban areas is estimated at 29%
and 38% in the rural areas in Somaliland; this study also found that there is a high
level of inequality in Somaliland (Sofia Ahmed 2017).
Hargeisa is the capital city of Somaliland, the self-declared state that re-asserted
from Somalia and announced its independence in 18 may 1991. After three years
Of Somaliland re-assentation in 1994 Somaliland government printed its own
currency which is comprised of 1 Somaliland shilling coin and 5, 10, 20, 100, and
500 Somaliland shilling banknotes. In addition Hargeisa experienced inflation for
the last years, excluding 2013, where both the prices and exchange rate fluctuation
rose. For example February ending year 2016 the prices of food rose 14.7 percent
(Ministry of Planning, 2016). Also the exchange rate rose from 7700 to 9500
Somaliland shilling per 1 US Dollar from July 2016 to June 2017 (commerce of
chamber, 2016, and 2017). Foreign currencies, particularly US Dollars, are
normally used in the country. People use US dollars for every transaction including
the smallest transactions such as a bottle of water and this has implications for
inflation. (Sofia Ahmed 2017).
For the last year of 2021 and this year of 2022 both the price of foods and fuels
fluctuation rose and still now goes up. For example the price of Rise, Sugar and Bur
are increase 14.8% from December 2021 to April 2022. Further, the price of Patrol
increase 26.7% from 7500 to 9500 Somaliland shilling per litter and the price of
Nissan increase 23% from 6500 to 8000 Somaliland shilling per litter.

1.2 Problem Statement

Rising inflation is one of the unsolved problems in Somaliland that is
directly influences the poor people. This research deal with the effects of inflation
on low-income people in terms of expenses on food and others items, income and
saving in Hargeisa city. The inflation rate of Somaliland still remains high in
absolute terms and by comparison with many other countries in the sub-region.
There is some hard problems like high price on goods and services because there is

3
no government plans to address and determine the original prices of this products
and services, Some of the households in this city haven’t basic needs, so this
research will examine how the increasing rate of inflation in this country affects
poor families. Therefore these people suffer enough for their life because they are
victim on high prices and unemployment in Somaliland, and there is no controlling
inflation, especially when inflation is unexpected and catches people off guard or
when it fluctuates widely from month to month or year to year. Also this research
will look into what are causes it repeatedly and why inflation in this country is
uncontrollable.
1.3. Purpose of the study
A purpose of the study is the statement that would be predicted what the researcher
would find in addition. This hypothesis would effects of inflation on poor people,
in Hargeisa City.
1.4 Research questions
1.4.1 Main question
What are the effects of inflation on poor people in Hargeisa City?
1, 4.2 Specific research questions
1. How poor people feel inflation?
2. How does inflation effects poor families in Hargeisa City?
3. Is there significant relationship between inflation and poor people in
Hargeisa Somaliland?
1.5. Objectives of the research
1.5.1. General objectives
The main objective of this research is to examine the effects of inflation on the poor
people/lower income people and income householders.
1.5.2. Specific objectives
1. To explain how low-income families, feel inflation effect by describing how
they deal with this.
2. To establish how inflation effects on poor people in Hargeisa City,
Somaliland.

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 3. To know the relationship between inflation and the poor people of Hargeisa
City, Somaliland.
1.6. Scope
1.6.1. Time scope
In regard to time spent on this research, its range from March up to June, 2022.
Where the first month were allocated to the development and approval of the
research proposal and the next two months is mainly for data collection and
analysis.
1.6.2. Geographical scope
This research conducted in Hargeisa (slum land market) on area which live Low
Income Families/poor people where the poorest communities in Hargeisa live. The
study targeted underclass poor Families in the area.
Why we choose {slums} These Area have been chosen because they live for the
poor families in Hargeisa. The poor Families are the most vulnerable especially
because they do not have any organization to help them out in sharing the heavy
financial burden due to the high cost of living and the steadily rising prices.
1.6.3. Content Scope
The study intends to examine the effects of inflation on poor people in Hargeisa
City, Somaliland.
1.7. Significance of the study
This study provides comprehensive detail about the effects of inflation on poor
people in Hargeisa City, Somaliland. The study explains how poor people are the
most vulnerable to inflation, which can increase the poverty rate and impact the
economic growth of the country. Hargeisa community has lived with inflation for
the last couple of years, where the prices of goods were not sustained and frequently
have been increasing, the result of this study is an improved understanding of the
effects of inflation on poor people, and how they dealt with it.
1.7.1. To Somaliland Government
The research will help the government specially Hargeisa local government to make
development and improvement the standard living on poor people in hargeisa and

5
also it helps the NGOs to make a survey to help the government creating a policy
and plans to control and deduct the inflation in this city.
1.7.2. To future researchers and scholars
The research will very important to us as researchers because we hope to acquire
research skills and apply my knowledge toward research methodology, also
developing skills like data collection and data analysis. The research will also
beneficial to future researchers who will carry out a research to the same topic about
the effect of inflation on poor people.
1.8. Description of the study
This research area is Hargeisa, this is located west in Somaliland map and
surrounded by mountains and hills. It shares boarders with Arabiya, in west and
Masala in south, there is many intermediates and secondary schools and also I has
large markets and business environment. This city is the largest city in Somaliland
and most of the population in Somaliland are there.
1.9. Operational definitions of key Terms
1. Inflation is simply rise in prices of commodities and devalues of money in
generally in period of time. It directly influences the standard of living. The
effect of inflation has made it very difficult for many households have to get
their basic necessities which have gone beyond their purchasing power.
2. Poor people is a lower income people who have no basic needs or the poor
people who having few material possessions or little income. Poverty can
have diverse social, economic, and political causes and effects. When
evaluating poverty in statistics or economics there are two main measures:
absolute poverty compares income against the amount needed to meet basic
personal needs such as food and clothing: Relative poverty measures when
a person cannot meet a minimum level of living standards, compared to
others in the same time and place. Somaliland is badly affected by many
types of poverty.

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 CHAPTER TWO
LITERATURE REVIEW
2.0. Introduction
The chapter presents the summary opinion and Ideas from Authors and
Experts of previous studies related to the study.
2.1. Inflation
Inflation is a main problem of most economies in the world and influences
a country’s growth in diverse ways. (Zoo et al. (2011), According to inflation is a
major factor that leads to social and economic instability. It is also viewed to be the
most observed and tested economic variables both theoretically and empirically
(Farad ET at, 2012). Inflation is often assumed to affect all people in the same way.
In practice, differences in spending patterns across households and differences in
price increases across goods and services lead to unequal levels of inflation for
different households. Inflation is a persistent increase in the level of consumer
prices or a persistent decline in the purchasing power of money, caused by an
increase in available currency and credit beyond the proportion of available goods
and services (Houghton, 2000) and to Wilson (1982) it is too much money chasing
too few goods. Inflation is a state in which the value of money falls and price level
persistently rises. It also takes place when price level expands more in proportion
to output (Said, 2010). In addition, it refers to a rise in the general level of prices of
goods and services over time and prices of some specific set of goods or services,
as in “commodities inflation” or “core inflation”, which is measured as the
percentage rate of change of a price index (Has, 2008).
2.2. Types of inflation on the basis of speed and intensity
2.2.1 Creeping Inflation
This is also known as mild inflation or moderate inflation. This type of
inflation occurs when the price level persistently rises over a period of time at a
mild rate. When the rate of inflation is less than 10 percent annually, or it is a single
digit inflation rate, it is considered to be a moderate inflation.

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2.2.2 Galloping Inflation
If mild inflation is not checked and if it is uncontrollable, it may assume the
character of galloping inflation. Inflation in the double or triple digit range of 20,
100 or 200 percent a year is called galloping inflation. Many Latin American
countries such as Argentina, Brazil had inflation rates of 50 to 700 percent per year
in the 1970s and 1980s.
2.2.3 Hyperinflation
It is a stage of very high rate of inflation. While economies seem to survive
under galloping inflation, a third and deadly strain takes hold when the cancer of
hyper- inflation strikes. Nothing good can be said about a market economy in which
prices are rising a million or even a trillion percent per year. Hyperinflation occurs
when the prices go out of control and the monetary authorities are unable to impose
any check on it. Germany had witnessed hyperinflation in 1920’s.
In Zimbabwe, hyperinflation occurred for different reasons. One of the core causes
of inflation was money supply - printing more money (Munangagwa, 2009).
However, Zimbabwe’s community complained about the huge amount of money
that they needed to carry when purchasing a simple item, like bread. Zimbabwe’s
government printed new banknotes by adding more zeros several times to solve the
existing inflation. This made the problem worse. Therefore, hyperinflation
increased until the Zimbabwean nation deserted their currency and the government
officially authorized foreign currency transactions (International Monetary Fund,
2007) and International Monetary Fund (IMF 2009). In 2012 the Somaliland
government printed new currency for 5000 and 1000 Somaliland shillings. This
caused public concern as the community expected that this would result in inflation
immediately. After a couple of months when the inflation did not occur it was no
longer a public concern. However, there has been inflation over the following four
years, with the exchange rate rising from 6500 to 9500 Somaliland Shilling per 1
US dollar during 2015 to 2017. The economists agree that the money supply takes
time to influence the economy, and it would influence it in the longer term. Further,
inflation leads to poverty and affects economic development. Many studies have
confirmed that inflation has a significant impact on poverty levels. These studies

8
indicated that inflation is one of the macroeconomic fluctuation indicators. Inflation
is an important element which has an important effect on poverty increment. For
instance, (Ivana & Martin, 2008) investigated nine developing countries across the
world and proved that inflation generally has a negative impact on poverty. They
found that price rises increase the poverty rate. (Wooden, et al., 2008) also assessed
12 Sub-Sahara African countries to study the impact of inflation on poverty. They
found that food price rises increase poverty. (Comfort, et al., 2009) studied the
impact of and policy responses to a commodity price boom in Malawi, and found
that the price rise had a substantial impact on poverty increments. In Hargeisa, the
population is increasing rapidly. According to a CIA 2015 estimation, population
was 760,000. According to the world population review of 2017, Hargeisa
population is 1.2 Million (WPR 2017). It is obvious that Hargeisa population
increased vastly. However, Somaliland pastoralists are moving to the cities
including the capital city Hargeisa. The majority of those who are moving from the
rural areas are mostly very poor. As they are neither educated nor skilled this makes
them the most vulnerable victims of inflation. In 2003, Bradbury interviewed the
poet Mohamed Hardaway; Hardaway said, “In the last five years our development
were much less than we expected. The first reason is economic. Somaliland
livestock is the backbone of Somaliland development. But Somaliland people are
leaving the rural, particularly the young people. The pastoralist youth interested
urban way of life, and come to the urban with no skills, no employment
opportunities, this made the urban towns look like refugee camps, and hindered the
economy progress” (Bradbury, 2008). Though inflation has its impact on the
economy, inflation hurts the poor people more than anybody else. Research which
has been conducted in thirty eight countries on 31869 households shows that the
poor people are more likely than the rich people to state inflation as a top national
concern (Easterly & Fischer, 2001). (Varian, 2005) states that “Economic policy
often uses tools that effect a consumer's budget constraint, such as taxes. For
example, if the government imposes a quantity tax, this means that the consumer
has to pay a certain amount to the government for each unit of the goods he
purchases. From the viewpoint of the consumer the tax is just like a higher price.”

9
Accelerating inflation also reduces real wages and increases poverty. This effect
dominated Latin America between 1977 and 1989. (Cardoso, 1992) claimed that
there is a negative impact of inflation on wages. The real wage amount remains the
same, but since the prices rise the value of the money decreases. Therefore, the
consumer spends more to get the same item that he/she used to buy for less before.
2.3. Causes of the inflation
2.3.1 Demand Bull Theory
John Maynard Keynes (1883-1946) and his followers emphasized the
increase in aggregate demand as the source of demand-pull inflation. The aggregate
demand comprises consumption, investment and government expenditure. When
the value of aggregate demand exceeds the value of aggregate supply at the full
employment level, the inflationary gap arises. The larger the gap between aggregate
demand and aggregate supply, the more rapid is the inflation.
Keynesian (Keynes and his followers) do not deny this fact that even before
reaching full employment production factors and various appearing constraint can
cause increase in public price. This inflation constraint that appears quickly during
prosperity is originally resulting from no proportioned section, branches and or
various economic resources that are accounted from natural properties of discipline
based on market. Therefore, in one period of prosperity it is completely natural.
According to demand pull inflation theory of Keynes, policy that causes decrease
in each component of total demand is effective in reduction of pressure demand and
inflation. One of the reductions in government expenditure is tax increase and to
control volume of money alone or together, can be effective in reducing effective
demand and inflation control. In difficult conditions, e.g. hyperinflation during war
that control of volume of money or decrease in general expenditure may not be
practical increase in tax can get along with direct action for control on demand.
2.3.2 Cost Push Theory
Cost-push inflation is caused by wage increases enforced by unions and
profit increases by employers. The type of inflation has not been a new phenomenon
and was found even during the medieval period. But it was reviewed in the 1950s
and again in the 1970s as the principal cause of inflation. It also came to be known

10
as “New Inflation”. The basic cause of Cost-Push inflation is the rise in money
wages more rapidly than the productivity of labor. The labor unions press
employers to grant wage increases considerably, thereby raising the cost of
production of commodities. Employers in turn, raise prices of their products. Higher
wages enable workers to buy as much as before, in spite of higher prices. On the
other hand, the increase in prices induces unions to demand still higher wages. In
this way, the wage-cost spiral countries, thereby, leading to cost-push or wage-push
inflation. Cost-push inflation may be further aggravated by upward adjustment of
wages to compensate for rise in cost of living.
A few sectors of the economy may be affected by increase in money wages and
prices of their products may be rising. In many cases, their products are used as
inputs for the production of commodities in other sectors. As a result, cost of
production of other sectors will rise and thereby push up the prices of their products.
Thus wage-push inflation in a few sectors of the economy may soon lead to
inflationary rise in prices in the entire economy. Further, an increase in the price of
imported raw materials may lead to cost-push inflation. Another cause of Cost-Push
inflation is profit-push inflation. Oligopolistic and monopolist firms raise the price
of their products to offset the rise in labor and cost of production to earn higher
profits. There being imperfect competition in the case of such firms, they are able
to administered price of their products. Profit-push inflation is therefore called
administered-price inflation or price-push inflation.
2.3.3 Excess Demand Theories
Excess demand is when the supply of goods and services falls short of the
demand for them. Excess demand leads to rise in prices of goods and services
because interested consumers engage in competitive bidding which result into
higher prices. This view is better explained using the Keynesian analysis. The
excess-demand theories argued that excess demand for goods and services over
supply in an economy is the main source of inflation. This view that was implicitly
reflected in the Phillips empirical study in the late 1950s, which showed a trade-off
between unemployment and inflation (the Phillips curve), led the monetarists to

11
search for a theory that can explain the existence of excess– demand to propagate
inflationary conditions.
2.3.4 Market Power and Inflation
Market power exercised by firms has become central to macroeconomics.
Hall (1986, 1988) demonstrates how substantial market power and declining or flat
marginal costs attenuate firms' incentive to alter prices, thus contributing to
aggregate fluctuations. In general equilibrium frameworks, market power heightens
the sensitivity of output and employment to demand policies (Hart, 1982; Blanchard
and Kiyotaki, 1987) and enhances the ability of calibrated models to mimic the data
(Rotenberg and Woodford, 1996). Additional work (surveyed in Rotenberg and
Woodford, 1991, 1999) emphasizes that cyclical variation in market power can
attenuate or amplify the equilibrium impact of macro shocks. Market power may
be sensitive to inflation, thus creating an additional channel by which inflation
directly affects the macroeconomic. In a series of papers, Bénabou (1988, 1992a,
1992b) links the welfare costs of inflation to its impact on market power. When
monopolistically competitive firms set prices with (S, s) rules, he shows that
inflation increases the dispersion of prices within an industry. Consequently, buyers
devote more resources to search and, for a given level of market power, inflation
lowers welfare. However, additional search may reduce market power and lessen
resource misallocation. On balance, the welfare effects of inflation are ambiguous,
and depend critically on the sign of the relation between market power and inflation.
In Ball and (Roomer 1996 and Tomas 1994), inflation lowers welfare by increasing
relative price variability, reducing the information about future prices contained in
current prices, and thus allowing firms to raise markups on less informed and less
price-elastic consumers
2.4. Measurement of inflation
Inflation can be measured by the inflation rate. The Inflation rate is the
percentage change in the general price index, usually the Consumer Price Index.
“Inflation is the growth in the overall level of prices in an economy. The inflation
rate can be measured by the Consumer Price Index (CPI) which is inflation = (P2-
P1/P1)*100 (Mateer & Coppock, 2014).

12
The economy’s overall price level can be viewed in two ways: number one, as the
price of goods and services, such as the amount of money that the consumer should
pay to get a specific item(s) or service. Number two as the value of the money,
because if prices rise more money will be paid to get the same item that the
consumers paid less for before, which means that the value of the money has
decreased (Mankiw, 2015).
2.5. The link between poverty and inflation
Inflation refers to an increase in the prices of goods and services. Poverty
and inflation have a close relationship in that a country with high inflation is likely
to have high poverty rates as well. An inflation rate measures how much the prices
of goods and services change over a year. Many countries struggle with high
inflation rates. (Dr: Prince Ellis).
2.5.1. Consequences of High Inflation
Dr. Prince Ellis, a professor of economics at the University of Cincinnati,
spoke with The Bergen Project about the relationship between poverty and inflation.
He explained that Zimbabwe and Venezuela have some of the highest inflation rates
in the world. “These are two extremes,” he notes. “The price of goods and services
can increase almost about 200% a day.” He used the example of a gallon of milk.
If the milk is $2 one day, the very next day, the same gallon could be $6. (Dr. Ellis)
shared his own experience with inflation in Ghana, where he grew up. “I remember
my mom had a store, like a convenience store at my house and we used to sell
general convenience items – bread, rice and milk and stuff like that… We are
changing prices each week. She goes to the wholesaler, they change the price [of
the goods] like price goes up by 20%. We have to also change it by 20%.”
Unsurprisingly, this upsets consumers. Consumers may go to the market expecting
an item to cost the same as it did last week. Of course, this is not the case, and they
may find themselves suddenly unable to afford the item.
2.5.2. How Inflation Contributes to Poverty
Poverty and inflation have a connection due to the fact that money has value,
and its value can grow or diminish. Poverty is a lack of financial resources, leading
to an inability to afford basic needs. In other words, as the cost of basic needs

13
increases, the amount of financial resources necessary to afford those needs also
increases. Dr. Ellis described this concept as “purchasing power.” He explained
how increasing costs lead to decreasing purchasing power. If a person’s income
level does not increase at as high a rate as the inflation increases, they will become
poorer.
2.5.3. Poverty and Inflation Inequality
One of the issues regarding poverty and inflation is that high inflation has a
disproportionately large negative effect on those struggling with poverty. Inflation
inequality describes the disparities between the effects inflation has on middle, rich
and poor people. There are multiple reasons why inflation affects the poor people
more than those with higher incomes. One of the main reasons has to do with the
types of jobs these two types of people have. Poor people often don’t have much
opportunity to negotiate their wages. However, income is only a rough guide to the
goods and services you can actually buy. Some people may have very high living
costs (e.g. rent / council tax / transport costs). Therefore, the quantity of goods and
services you can actually buy will give a better guide to living standards than just
income. Another issue is that some people may receive benefits in kind. E.g. those
on means tested benefits often receive prescriptions and dentist visits for free.
Therefore, their living standards are better than their actual income may suggest.
2.6. Measurements of poverty in Somaliland
Somaliland is badly affected by many types of poverty. Somaliland
Household and Enterprise Survey have considered poor for those individuals who
earn less than a dollar ($1) per day. The survey also entails that 37 percent of rural
and 30 percent of the urban population are poor. Somaliland is amongst the poorest
nations in the World, with a Gross Domestic Product per capita of $499.8 ahead of
Burundi, Democratic Republic of the Congo and Niger. Urbanization is higher than
ever and urban poverty is aggravated by the increasing number of population. A
World Bank study has shown that for every four people living in urban areas in
Somaliland more than one is living in poverty.

14
 Another factor in measuring poverty for the economy is the number of people living
below the poverty line. The poverty line is defined as: The level of expenditure
necessary to buy a minimum level of nutrition and other basic necessities.
1. Index of Human Development HDI
This is a measure which seeks to look at the available choices that people have. It
is a composite
Indicator comprised of 3 basic factors affecting living standards – income, life
expectancy and education. The three components are:
a. Real GDP per Capita, adjusted for the local cost of living (PPP)
b. Life expectancy
c. Education – levels of literacy
2. Index of Human Poverty HPI
This was introduced by the United Nations Development Programmed UNDP it is
similar to the Index of Human Development, but, the HPI gives a greater weighting
to examining how economic development is distributed throughout society.
2.7. Theoretical Framework:
2.7.1. Monetary Theory of Inflation
Monetarism refers to the followers of M. Friedman (1912-2006) who hold
that “only money matters”, and as such monetary policy is a more potent instrument
than fiscal policy in economic stabilization. According to the monetarists, the
money supply is the “dominate, though not exclusive” determinant of both the level
of output and prices in the short run, and of the level of prices in the long run. The
long- run level of output is not influenced by the money supply. The monetarists
emphasized the role of money. Modern quantity theory led by Milton Friedman
holds that “inflation is always and everywhere a monetary phenomenon that arises
from a more rapid expansion in the quantity of money than in total output. Its
earliest explanation was to be found in the simple quantity theory of money. The
monetarists employed the familiar identity of exchange equation of Fisher. Asserts
that money supply growth is the cause of inflation. Faster money supply growth
causes faster inflation. In particular, 1% faster money supply growth causes 1%

15
more inflation. With other things constant, the price level is proportional to the
money supply. Doubling the money supply would double prices.
2.7.2. Structural Inflation Theory
About 40 years ago, the concept of structural inflation entered in economic
discussion and research. It is related to the effect of structural factors on inflation.
Structural analysis attempts to recognize how economic phenomena and finding the
root of the permanent disease and destruction such as inflation that evaluates lawful
relationship between the phenomena. In the economic structural factor causes,
supply increase related to demand-push, even if abundant unemployment
production factor is impossible or slow. Therefore, reasoning of less developed
countries, till the time not successful to change in the form of lagging behind
structure or not to make attempt for immediate self-economic growth or should
compromise with the inflation that is very severe sometimes. This inflation, giving
the structural improvement, results as a cost in fact that is given for immediate
economic growth. Structuralism, even the group that does not fine necessary for
changing the present policy foundation for eradicating inflation, with the control of
inflation through government intervention in the market structure and also, by
adopting decisive plans for justly division of inflation pressure there is no
opposition and in fact stress is done on these arrangement. But, common anti-
inflation measures especially contraction monetary and budget policy from their
point of view, is nothing but only a prescription for stopping the economic growth
of non-developing countries, that also through experts that or rationing developed
investment countries and world organization under their supremacy (rule) and or by
understanding less developed economy features are disabled (crippled).
Rapid and faster growth of the service sector that is related to population
growth and immigration is another inflationary factor, which is more emphasized
by the structuralism. Remaining structure of distribution network, exclusive quasi
and structure some of the developed industry, obstacle structure and heavy cost of
works and tens of other small and big factors additionally to all these structuralism
from the aspect of inflationary social policy structure is unaware.

16
2.8. Empirical Evidence:
2.8.1: The effects of inflation to the poor people
Inflation always hurts the poor people. Rising prices means you have to pay
more for the same goods and services. If your income increases at a slower rate as
inflation, Inflation's main consequence is a subtle reduction in the standard of living.
Inflation doesn't affect everything equally. Gas prices can double while your home
loses value. This makes financial planning more difficult. Inflation is really bad for
the financial planning because your target has to keep getting higher to pay for the
same quality of life. In other words, your savings will buy less. As a result, you will
need to save today to pay for higher priced goods and services in the future. Since
everything you buy today costs more, so you have less left-over income available
to save. Inflation has another bad side-effect, once people start to expect inflation,
they will spend now rather than later. That's because they know things will only
cost more lately. This consumer spending heats up the economy even more, leading
to further inflation. This situation is known as spiraling inflation because it spirals
out of Control. Inflation is important if you are holding bonds or Treasury notes.
These fixed price assets only give a fixed return each year. As inflation spirals faster
than the return on these assets, they become less valuable.
Although, inflation deteriorates standard living but not for all, e.g. debtors, and is a
contributing factor of motivation to earn more and more to cope with the
phenomenon. Inflation occurs when day-to-day expenses rise. An imbalance in the
relationship between supply and demand causes inflation. Prices rise as increasing
numbers of people compete to buy a limited number of goods. Periods of inflation
are common in functioning free market economies. However, inflation can have a
bad effect on the poor people.

17
 CHAPTER THREE
RESEARCH METHODOLOGY
3.0. Introduction
This is third chapter of the research this involves the selection of a
qualitative and quantitative design and preparation for data collection. Decisions
the sample how will have framed, developed, how entry to a research site was be
gained, data collection methods and research instruments, and analysis of data is
discussed Research methods, Study area, target population, sampling methods,
sample Procedure, population, sample unit and sample size, and many Areas were
also discussed in this chapter.
3.1 Variable Definitions
The level of influence and effect of one variable on the other, the
researchers evaluates the relationship between two variables. As many authors
mentioned for their written books, they had told different and different definitions
about inflation, most of them, they have some mutual definitions as a meaning of
the term.
According to Investopedia inflation is the decline of purchasing power of a given
currency over time. A quantitative estimate of the rate at which the decline in
purchasing power occurs can be reflected in the increase of an average price level
of a basket of selected goods and services in an economy over some period of time.
The rise in the general level of prices, often expressed as a percentage means that a
unit of currency effectively buys less than it did in prior periods.
Another important definition about the second variable of the research saying that
the poor people who having few material possessions or little income. Poverty can
have diverse social, economic, and political causes and effects. When evaluating
poverty in statistics or economics there are two main measures: absolute poverty
compares income against the amount needed to meet basic personal needs such as
food and clothing: Relative poverty measures when a person cannot meet a
minimum level of living standards, compared to others in the same time and place.

18
3.2 Research Design.
Kothari (2004) explained the importance of the research design for the
research efficiency, validity and reliability. We apply descriptive design to
investigate the relationship between Inflation and poor people In The case of ENJ
market of Hargaisa, Somaliland. Both quantitative and qualitative methods were
used to make sure that all the important and relevant information for the study was
utilized. According to Lisle (2011), mixed research method strengthen the validity
of the research findings. It also improves instrumentation for the data collection
approaches. Research design also deals with the source of data, sampling technique,
data collection and analysis methods in the study reaching to the point of knowing
the effects of inflation on poor people in Akara Village and ENJ market of Hargeisa.
3.3 Sampling Procedure
The study adopted simple random sampling technique to select the poor people that
is involved in this study. Simple random sampling is a technique of selecting a
sample in such a way that each member of the population has an equal and
independent chance of being included in the sample.
3.3.1 Population
Sample design that the study uses is probability sampling design, which the
researcher doesn’t selected the sample size from the population, the population this
study will consider is some of the poor people in ENJ market and those other who
have related there is more than 200 businesses in this market, there is no record of
the exact population of this market but as the Hargaisa Local Government Division
of Ahmed Dagah data District estimate the population of this market is more than
200 businesses

19
3.3.2 Sample frame

Table 1: 3.3.2

Location Population Sample size Sample method

ENJ Market >200 65 Random sampling

Total 200 65

3.3.3. Sample Unit

The sample unit of the study are generally low-income people whether they are in
Hargeisa, Somaliland. After that the most area are lied in the Ahmed Dagah district,
including those workers of slum land Markets, ENJ MARKET is the most
important ones of those we had taken as a sample unit.
3.3.4. Sample Size
The sample size of the study was numbers of necessary respondent those the
researcher was collect from them the raw data of the research or the machine of the
research was the sample respondents because they will give the researcher full
descriptions about what they know through that field. The research sample size was
determined the number of target population according to the slum areas.
According to the study the sampling techniques used in this study is rule of thumb.
Because unavailability the exactly numbers of target population. After making an
estimation about this paper’s target population and using this below table (rule of
thumb), the target population of this study is approximately 200 those are works
within the slum land markets in Hargeisa Somaliland, then the sample size of this
study became 65 people accordingly.

20
Rule of thumb

Table 2 3.3.4

Source: James Crosland, Sample size (The rough guide)

3.3.5. Sampling Techniques
Both probability and non-probability sampling techniques were employed in this
study. Dealing with the probability sampling, stratified sampling was incorporated
since the population is homogeneous. Stratified sampling technique results in more
reliable and detailed information. On the other hand, non-probability sampling
technique was employed to select interviewees purposively. The reason why
purposive sampling technique was chosen is to intentionally include in to the
sample those key informants who have the knowledge and experience for the
thematic area in order to get in depth information. As a result, one key informant
were purposively selected for interview (ENJ market).
3.4. Data Collection Techniques
Survey through well-structured and self-administered questionnaire and interview
as data collection instruments were used for this study. The data collection was
conducted by the Researcher.
The first part of the questionnaire was designed to capture the characteristics of
respondents such as sex, age, level education, the position of the respondent in the
enterprise, working experience prior the current position as well.

21
The second part contained questions which were designed to capture inflation
effects.
The third part contained questions which were designed to capture the level of poor
people.
All parts of the questionnaire are important to bring intended variables in to play.
Analysis and data presentation part represents the aforementioned data perspectives.
The questions contained in the questionnaire were mainly close ended ones. This is
to avoid misinterpretation and make information valid and reliable. It is also to keep
the questionnaire into a sound and reasonable length.
3.5. Sources of Data
3.5.1. Primary Data Sources
In this paper’s primary data source was come from this paper’s direct respondents
through this market in Hargeisa, those responds were giving this paper’s raw
materials and the researcher will identify and analyses those raw materials and he
will interpret it into useable findings and solution.
3.5.2. Secondary Data Sources
In this kind of data sources are those data from searching engines, books, journals,
webs, articles, quotes, researches etc. those researchers has used in his research and
it’s an important part of this research, citation is the most needed things in the every
taken paragraph and context because of guarding other property rights.
The secondary data source was come one or most of the previous types of data
sourcing types and the researchers was clarifying after the completed the research
with the references accordingly.
3.6. Data Presentation and Analysis (tools)
During the data analysis the study were used descriptive analysis for analyzing
various respondents’ gives to a particular secondary data analysis then will be
presented in Bar chart, Pie-chart, Pareto chart and line graphs. Where the raw data
of the researcher will apply the different important methods of descriptive analysis
and results and solutions will show through discussed and well interpreted structure
results of research.

22
3.7. Data Analysis and Interpretation
The researchers have applied and used to analyze for the research for descriptive
analysis because of the study variables.

23
 CHAPTER FOUR
FINDINGS AND DISCUSSIONS
4.0 Introduction
The research study was designed to find out the effects of inflation on poor
people in Hargeisa City Somaliland. The purpose of data analysis is to give the
findings of the effects of inflation on poor people in ENJ market in Hargeisa and
the way that the inflation effect on family income.
4.1 Findings of the study
4.1.1 Background of the respondents

Table 3 4.1
Age of respondents
Frequency Percent

16 24.6
20-25

11 16.9
26-30

7 10.8
31-36

31 47.7
above 36

65 100
Total

Source: Primary Data

The table above show that 24.6 percent of the respondent’s age were 20-25, and
16.9 percent of respondent’s age between 26 and 30, 10.8 percent of respondents
were between31-36, and 47.7 percent above 36. The respondent’s ages are different
because of the different residents in the market.

24
Table 4 4.2

Gender of respondents

Frequency Percent

Male 24 36.9

41 63.1
Female

65 100
Total

Source: Primary Data (2022)

As the above table shows in attempt to find the gender of the respondent 37 percent
of respondent were male and other 63 percent are female. The reason of this is
because of the Market, the people we were investigating were mostly womens and
adult people and also local business people.

Table 5 4.3

Martel status of respondents

Frequency Percent

Single 19 29.2

Married 46 70.8

65 100
Total

Source: Primary Data (2022)

The table indicates that 71 percent of respondent were married, and the reason is
that most of the population of this market was parents, 29 percent of the respondent
were single.

25
Table 6 4.4

Education level of respondents

Frequency Percent

Primary 23 35.4

Secondary 14 21.5

University 15 23.1

None 13 20.0

65 100
Total

Source: Primary Data (2022)

The table above shows that 23 percent of respondent were university level because
of they were a people who study after Somaliland got its independence back, 22
percent respondent were secondary level and the reason was unaffordability of
education and other personal problems, 35 percent of respondent were primary
/intermediate level while 20 percent was uneducated and the reason is most of those
people didn’t get the chance to study education.

26
Table 7 4.5

Occupation of respondents
Frequency Percent

37 56.9
Employment

28 43.1
Unemployment

65 100
Total

Source: Primary Data (2022)

On the occupation respondents, the findings were the majority of the respondents
were employment and 57 percent while 43% percent of respondents are
unemployed. It indicates the majority of research respondents are female who are
recently employed this SLUM AND MARKET.

27
SECTION 2 INFLATION
Figure 4.1 Inflation effects on your family

Inflation can effects in your family

6%
2%
Strongly agree
32%
Agree
60%
Disagree
Strognly disagree

Figure 1:4.1

Source: Primary Data (2022)

4.1 it shows that The Above pie chart respondents responded by 32 percent said
agree, 60 percent said strongly agree, while 6 percent of respondents said disagree
and 2 percent said strongly disagree effect majority of the families

28
Figure 4.2 Inflation causes to reduce the family purchasing power parity

Inflation causes to reduce purchasing

power

3%
5%
Strongly agree
34% agree
58%
disagree
strongly disagree

Figure 2:4.2

Source: Primary Data (2022)

The above pie charts 4.2 it shows that respondents responded by 58 percent said
strongly agree, 34 percent said agree whole 3 percent said disagree and 5 percent
said strong disagree that means the inflation can cause to reduce family purchase
power, so their consumption has decreased.

29
Figure 4.3 Inflation effects The Poor Families More Than the Rich Families.

Inflation effects the poor more than

rich

2%
6%
Strongly agree
34% Agree
58%
Disagree
Strongly Disagree

Figure 3:4.3

Source: Primary Data (2022)

The results on figure 4.3 shows that majority of communities agreed The Inflation
affects the poor families more than the rich families 58 percent said Strong agree,
34 percent said Agree, 6 percent said disagree and 2 said Strong Disagree these
results Shows that the inflation affects the poor families more than the rich families
.

30
Figure 4.4 Dollarization economy, Local production being very low and being
export oriented are the causes of inflation

Dollarization economy,Local production

being very low and export oriented are
the causes of inflation

6% 5%
Strongly Agree
35% 54% Agree
Disagree
Strongly Disagree

Figure 4:4.4

Sources: primary source (2022)

The above pie chart shows 35.4 percent of respondents said agree, 53.8 percent of
respondents said strongly agree, while 6.2 of respondents said Disagree and 4.6
percent of the respondents said Strongly Disagree

31
Figure 4.5 Price fluctuation can lead to inflation

Price fluctuation can lead to inflation

5% 6%
Strongly Agree
31% Agree
58%
Disagree
Strongly Disagree

Figure 5:4.5

Sources: primary source (2022)

The above bar chart 4.5 show the percentage respondents of 31 percent said agree,
58 percent said strong agree, 5 percent said disagree and 6 percent said strong
disagree, so that the most respondents said agree and strong agree that means the
huge reason of inflation is caused by price fluctuation so there is positive
relationship between Inflation and price fluctuation so that, the government should
be create the Strong rules who control and minimize the high price fluctuation.

32
Figure 4.6 except Inflation Is There Any Factors That Effect on Low Income
Families

Except inflation is there any factor

that effects on low-income families

23%

Yes

77% No

Figure 6:4.6

Source: Primary Data (2022)

the above pie chart 4.6 shows that the respondents of questionnaire responded 77
percent said Yes and 23 percent said No, this means that other factors have caused
in low income factors that respondent has told as unemployment, low production,
poverty, bad governance and low infrastructure.

33
SECTION 3 Low-income families
Figure 4.7 Low Income Families Are Most Vulnerable for the Inflation

Low-income families are most

vulnerable for inflation

5%
3%
Strongly Agree
26%
Agree
66% Disagree
Strongly Disagree

Figure 7:4.7

Source: primary source (2022)

The above pie chart 4.7 shows that the percentage respondents of questionnaire 26
percent said agree, 66 percent said strongly agree, 5 percent said disagree and 3
percent said strongly disagree so that this pie chart have shown that the most
vulnerable of inflation is Low income families in Somaliland because these people
should use local money.

34
FIGURE 4.8 Government Doesn’t Subsidies Low Income Families Through
Limiting Inflation.

Government doesn't subsidies low-

income families through limiting
inflation

9%
6% Strongly Agree
54% Agree
31%
Disagree
Strongly Disagree

Figure 8:4.8

Source: primary source (2022)

From above par chart 4.8 shows that the respondents of questionnaire responded
by 31 percent said agree, 54 percent said strongly agree, 6 percent said disagree and
9 percent said strongly disagree this means that Somaliland government has not
subsidies in the low income due to implemented well.

35
Figure 4.9 Low income Families

Increasing of unemployment rate is

effecting in family income

11%
8%
Strongly Agree
43%
Agree
38% Disagree
Strongly Disagree

Figure 9:4.9

Source: primary data (2022)

The above pie chart 4.9 shows that the percentage respondents of questionnaire 48
percent said strongly agree, 38 percent said agree, 8 percent said disagree and 11
percent said strongly disagree so that this pie chart shows that the impact of inflation
in Somaliland is large especially in Hargeisa, this increased poverty, and low
income families has become most victims of inflation.

36
Figure 4.10 Low income families have no skills which they can manage their
income during inflation

Poor families have no skill which they

can manage their income during
inflation

8%
12% Strongly Agree
49% Agree
31% Disagree
Strongly Disagree

Figure 10:4.10

Source: primary data (2022)

From above pie chart 4.10 shows that the respondents of questionnaire responded
by 31 percent said agree, 49 percent said strongly agree, 12 percent said disagree
and 8 percent said strongly disagree, this means that low income families has no
skills in Somaliland government should build the skills of low income families and
give talent work to survive the situation of inflation.

37
Figure 4.11 did you receive financial support on your family Income

Did you receive financial support on

your family income

35%
Yes
65%
No

Figure 11:4.11

Source: primary data (2022)

The results on pie chart 4.11 also shown that majority of communities has not access
a financial support because 65 percent has answer that don’t have a financial support
and 35 answer that they have a financial support, The reasons that the low income
families caused that the poor families have not access a financial support are cause
the laws of banks has had to borrowing the poor families due to afraid for risk and
the government don’t have subsidies due to the low budget.

38
 CHAPTER FIVE
DISCUSSION/INTERPRETATION, CONCLUSION AND
RECOMMENDATIONS
5.0. Introduction
This chapter presents the findings, conclusions and recommendations drawn
from the study. From the analysis and data collected the following discussions,
conclusions and recommendations were made. The response was based on the
objectives of the study and areas for further research suggested.
5.1. Discussion
This investigation was to search out the demographic characteristics of the
respondents. This result indicated the majority of the respondents are female 63
percent and other 37 percent are male, it also showed the majority of the respondents
had educated 23 percent are University level, 22 percent are Secondary level while
35 percent are primary level.6 percent, while majority of the respondents their age
above 31 and their percentage is 47.7, on the other hand the majority of the
respondents are married 71 percent and the majority of the respondents are
employment or workers 57 percent.
The study findings were the majority of the respondents 92% choose that the
inflation effects on their families, and 92% said that the inflation can cause to reduce
family purchasing power parity and they choose Agree and Strongly agree, We
found that the majority of the respondents agreed the inflation affects the poor
families more than the rich families because the above 90% has told that the effect
of inflation has more effect poor families than rich community, the majority of the
respondents 89% said Dollarization economy, Local production being very low,
and being export oriented are the causes of inflation, the study findings were the
majority of the respondents 89% said price fluctuation can lead to inflation, finally
the majority of the respondents 77% said there’s another factors that effect on low
income families such like unemployment, droughts, low production and so, on.
The study findings were the majority of the respondents 92% said Low-income
families are most vulnerable for the inflation, while the majority of the respondents

39
said, on the other hand 85% of the respondents said Government doesn’t subsidies
low income families through limiting inflation, although the majority of the
respondents above 81% said increasing of unemployment rate effect in families
income which means all of this factors are effect family income and also the
majority of the respondents 80% said Low-income families have no skills which
they can manage their income during severe inflation finally the majority of the
respondents 65% doesn’t receive any financial support.
5.2 Conclusion
Inflation have had an extreme effect on poor people/families, whether it is
effecting their commodity basket, education or even their moral. One of the core
things that make them more vulnerable is that the price of food items and the
exchange rate have risen. Since most of the poor families in Hargeisa receive their
income in Somaliland shillings, while many transactions take place in USD
(including but not limited school fees and electricity bills) both inflation and
exchange rate fluctuation effects them. Further this can lead poverty; though there
is no poverty estimation study with the exception of one by the World Bank carried
out in 2014, the participants expressed that their situation had worsened due to the
inflation rates. Therefore, low income families who have been effected by the
inflation have removed their children from the schools since they could not pay
school fees while others have sent them to lower quality and cheaper schools that
they can pay for.
5.3 Recommendations
In the conclusion of this study the researcher summarized the findings of the
study and confirmed that inflation hurts the standard of living and real purchasing
power of society, the study also discovered that inflation in hargeisa is worsening
after time and the government of Somaliland must set a policy for controlling
inflation or at least to slow its rate. The researcher recommended the following
points:
1. The ministry of finance should impose heavy restrictions to the imported goods
since they are causing inflation or taking a huge contribution this worsening
situation.

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2. The government should encourage and improve the ministry of commerce in
order to manage the determination of inflation rate as well as Import and Export to
distribute efficiently.
3. Since inflation is big disaster in here Somaliland the government must set
policies towards that problem and the ministry of commerce should participate and
also the ministry of planning should take part of planning this policy.
4. The government must improve the standard of living of poor people in order to
reduce the riskiness of inflation.
5. Business community must use domestic produced goods rather than imported
goods, this would help the infant industries to produce more commodities with
lower prices and the purchasing power of the society will go up and the life style of
the population will be better, this is will cause economic growth and the society will
save money, which can create investment opportunities and new labor will be used
and functioning resources will work
6. Business community should improve their investment capacity for increasing
employment activity in order to improve the standard of living of poor people.
7. Business men should give care their community and charge as low prices as
possible, the people of Hargeisa and the other provinces are weakened by high
prices of commodities, so the merchants or business community must think of their
society and stop seeking high profits which effects the life style of the population
and lower the prices as possible.

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 APPENDIX A
QUETIONAIRE
Dear respondent:
This study will conduct by the student as part requirement for the award of
the degree of Bachelor degree of Accounting and finance at the Gollis University,,
This questionnaire is designed to gather information on the Effect of inflation on
poor people., Hargaisa, City Somaliland, and This research will aim
recommending how the inflation effects on poor people we kindly request you to
fill the questionnaire. Your response will be highly appreciated.

SECTION A: BACKGROUND INFORMATION

Please complete the blank spaces or mark (/) one choice in the box provided below:
Name (optional) ---------------------------------------------------------------------------
1. What is your age?
a. 20---25 b) 26---30 c) 31---36 d) above 36
2. State your gender:
Male b) Female
3. What is your occupation?
b. A) Employment b) Unemployment
4. Marital status
a) Single b) Married
5. What is the qualification?
a. a) Primary b) Secondary
b. c) University d) None

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 SECTION B: Inflation.
Please tick (√) one alternative in the spaces provided or complete the black spaces with ever
is appropriate do not tick more than one alternative on one statement.
NO STATEMENT 1 2 3 4

1 Inflation can effects in your family income

Inflation causes to reduce family purchasing

2 power parity

Inflation affects the poor families more than

3 the rich families

4 Dollarization economy, Local production

being very low, and being export oriented are
the causes of inflation

5 Price fluctuation can lead to inflation

Key: 1= strongly Agree, 2 = Agree, 3 = Not Agree, 4 = Strongly Not Agree,

NO STATEMENT 1 2

1 Except inflation Is there any factors that

effect on low- income families?

Key: 1=Yes, 2=No

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 SECTION C: Poor people
Please tick (√) one alternative in the spaces provided or complete the black spaces with
ever is appropriate do not tick more than one alternative on one statement.
No STATEMENT 1 2 3 4

1 Poor people are most vulnerable for the inflation

2 Poor people have no skills which they can

manage their income during severe inflation

3 Government doesn’t subsidies low-income

families through limiting inflation

4 Increasing of unemployment rate effecting

families income

Key: 1 strongly Agree, 2 = Agree, 3 = Not Agree, 4 = Strongly Not Agree,

Please tick (√) one alternative in the spaces provided or complete the black spaces with
ever is appropriate do not tick more than one alternative on one statement.
NO STATEMENT 1 2

Did you receive any financial support on your

1 family income?

Key: 1= Yes, 2 =No

44
 APPENDIX B
REFERENCES

1. (Mankiw 2015) Inflation is a rise of prices for goods and services Generally In a certain
period of time.
2. FAO: the global poor population of 2.3 billion people, another 100 million people to
those who live in absolute poverty.
3. The Daily News (2010): Report it is true that unscrupulous shopkeepers have taken
advantage of the situation by raising prices as they haven’t any other choice to meet
their own.
4. Carlos (2009) concludes that inflation is a global matter of concern
5. (Easterly & Fischer, 2000) argue that the rich can protect themselves
6. (Blinder & Blank, 1985) inflation leads to higher poverty rates.
7. (Kahn 1984) studied the effects of inflation on the poor in South Africa
8. (World Bank, 2012). This inflation typically hurt the poor most due to the higher
share of food in the poor’s consumption commodity basket.
9. (Sofia Ahmed 2017) high research programmer: the poverty rate in urban areas is
estimated at 29% and 38% in the rural areas in Somaliland;
10. . (Zoo et al. (2011), According to inflation is a major factor that leads to social and
economic instability.
11. (Ivana & Martin, 2008) investigated nine developing countries across the world and
proved that inflation generally has a negative impact on poverty.
12. (Wooden, et al., 2008) also assessed 12 Sub-Sahara African countries to study the impact
of inflation on poverty.
13. According to the world population review of 2017, Hargeisa population is 1.2 Million
(WPR 2017).
14. (Easterly & Fischer, 2001). Poor people are more likely than the rich people to state
inflation as a top national concern.
15. (Varian, 2005) states that “Economic policy often uses tools that effect a consumer's
budget constraint, such as taxes.

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16. . (Cardoso, 1992) claimed that there is a negative impact of inflation on wages.
17. John Maynard Keynes (1883-1946) and his followers emphasized the increase in
aggregate demand as the source of demand-pull inflation.
18. Keynesian (Keynes and his followers) do not deny this fact that even before reaching full
employment production factors.
19. (Surveyed in Rotenberg and Woodford, 1991, 1999) emphasizes that cyclical variation in
market power can attenuate or amplify the equilibrium impact of macro shocks.
20. (Roomer 1996 and Tomas 1994), inflation lowers welfare by increasing relative price
variability.
21. (Mateer & Coppock, 2014): by the Consumer Price Index (CPI) which is inflation
= (P2-P1/P1)*100.
22. Dr. Prince Ellis: that Zimbabwe and Venezuela have some of the highest inflation rates in
the world.
23. Dr. Ellis described this concept as “purchasing power.”
24. World Bank: every four people living in urban areas in Somaliland more than one is
living in poverty.
25. Monetarism refers to the followers of M. Friedman (1912-2006) who hold that “only
money matters”, and as such monetary policy is a more potent instrument than fiscal
policy in economic stabilization.
26. Kothari (2004) explained the importance of the research design for the research
efficiency, validity and reliability.
27. http://www.economicsdiscussion.net/category/inflatin

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RULE OF THUMB

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HARGEISA MAP

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