Inflation, interest rates and fuel prices – the perfect storm
23 March 2022
Solidarity today expressed its concern about the increasing pressure South African consumers have to bear. This comes after Statistics South Africa (Stats SA) earlier today released the latest inflation figures which indicate a 5,7% increase in the consumer price index (CPI).
According to Solidarity, consumers simply cannot keep up with all the price increases they have to carry and more pressure on South Africans would have disastrous consequences.
Theuns du Buisson, economics researcher at the Solidarity Research Institute (SRI), explains that the salaries of most people have been adjusted at the beginning of the year. “Thus, the sky-high inflation we are currently experiencing has not been included in such adjustments. Moreover, fuel price inflation of 29,4% is much higher than general inflation. Employees are struggling to make ends meet as they are simply losing more and more buying power every month. Even after increases salaries just cannot keep up with inflation and you have to buy less and less, even if you are earning a little more. What happens to those who did not get an increase or households where a breadwinner has lost his or her job?” he wanted to know.
Solidarity contends that the latest inflation figures clearly confirm the merit and urgency of Solidarity’s demand that fuel prices be left to the market and be deregulated in their entirety.
“Virtually all the major price increases in the latest CPI release occur among the regulated administrative prices, which rose by a shocking 16,7% over against general inflation of 5,7%. In short, where the government is involved, it is to total detriment of everyone. Breaking the government’s stranglehold on the economy is no longer something that is merely desirable but has become imperative. The government’s incompetence has now indeed become unaffordable,” Du Buisson said.
Solidarity further emphasised that the prospect of raising interest rates during the announcement by the Monetary Policy Committee (MPC) on Thursday 24 March, is highly alarming and unjustifiable.
“It is short-sighted and irresponsible to hike interest rates at random in an attempt to ward off inflation. Using interest rates in such a way is more appropriate in growing economies and where inflation is the result of excess demand in the economy,” Du Buisson argues. “However, higher interest rates continue to be responsible for less capital in the market and hamper investment in the economy. Therefore, an interest rate adjustment will further restrict growth , and will keep us much poorer for much longer than necessary”.
Solidarity also appealed to the South African Reserve Bank (SARB) not to raise interest rates in the announcement this week. According to Solidarity, South Africa’s economic predicament can be attributed to fiscal and regulatory policy rather than to relatively low interest rates.
“At the moment, consumers are facing the perfect storm that is having an extremely negative impact on their budgets. This must be stopped in its tracks immediately, the deregulation of all fuel prices, as well as an unchanged or even lower interest rate being a good starting point,” Du Buisson concluded.
Issued by Theuns du Buisson, Solidarity Research Institute: Economics Researcher, 23 March 2022
