Causes and Consequences of High Inflation the lowest in housing and utilities. The share of consumption expenditure devoted to food and beverages is the highest at over 48 percent for the lowest income quintile and under 29 percent for the top quintile. Therefore, it is likely that the rate of inflation faced by the lowest income quintile is the highest. It was 22.2 percent for this quintile in June 2022 and declined in successive quintiles to reach a low of 20.6 percent for the top quintile. Clearly, the emphasis has to be to limit the increase in food prices. Turning to the impact of inflation on key macroeconomic variables the estimates are considerable importance, as shown in Table 11.7. They have been derived from the BNU Macroeconomic Model. Table 11.7: Contribution of the Rate of Inflation to Different Macroeconomic Magnitudes Impact of 1 percentage point higher rate of inflation Percentage Points • Real Household Consumption Expenditure-0.446 • Private Investment-0.146 • Exports of Goods and Services-0.433 • Imports of Goods and Services 0.204 • Nominal Interest Rate 0.253 • Change in Money Supply 0.813 • Revenue from Indirect Taxes 0.852 • Revenue from Direct Taxes 0.640 • Incidence of Poverty 2.742 • Level of Inequality 0.061 Source: BNU Macro-econometric Model A higher rate of inflation leads to decline in real household consumption expenditure, fall in private investment, worsening of the trade deficit, higher nominal interest rate, tax revenues, poverty and inequality. For example, a higher rate of inflation is likely to lead to a fall in the tax-to-GDP ratio. A one percent higher rate of inflation leads to 0.85 percent increase in revenues from indirect taxes and 0.64 percent increase in direct tax revenues. Since both are less than unity this implies a fall in the tax-to-GDP ratio. Similarly, a 1 percent higher rate of inflation can increase the incidence of poverty by 2.7 percent, other things being equal. An analysis has also been undertaken of the impact of inflation on real wages of construction workers, both skilled and unskilled. The trends since 2013-14 are shown in Figure 11.4. In the presence of low single-digit inflation up to 2017-18 real wages rose cumulatively by over 10 percent. Since then, there has been a sharp fall in real wages due to the high inflation of over 22 percent. This will have led to increase in the incidence of poverty. 113