Solidarity: Interest rate increase will impede economic growth
18 May 2022
Solidarity today expressed its concern about the impact of higher fuel inflation and an inflation rate that threatens to gravely impoverish the consumer. At the moment, fuel price inflation stands at 29,2%.
“Higher interest rates will not make the world’s oil flow, will not bring peace to Ukraine or change US monetary policy. Consumers are under incredible pressure and any attempt to do something about it by increasing interest rates will only make matters worse. The fact that economists say we are entering a cycle of interest rate hikes is no reason to push up rates,” Theuns du Buisson, economics researcher at the Solidarity Research Institute (SRI) says.
According to Du Buisson, interest rate hikes will only put consumers under greater pressure while doing nothing to control inflation. The inflation we currently see is not accompanied by economic growth and for this reason it should be avoided.
“The only thing that an interest rate increase will achieve is to withdraw capital from the economy which will impede job creation and growth. Rates in South Africa are already relatively high compared to the rest of the world. Further increases will prejudice all chances for proper economic growth by restricting local citizens’ access to capital,” Du Buisson contends.
Moreover, Du Buisson is of the opinion that there are more important problems that need to be addressed, such as fuel price inflation which is already at 29,2% and interest rate hikes make no difference to it. He also believes that archaic fuel regulations are hurting the consumer, yet deregulation of the fuel price is not getting the attention it deserves.
“This is a real problem for every South African, and one that is exacerbated by increases across the economic spectrum. There is no point in punishing the consumer beyond the point of reasonableness with excessive increases and high prices. Fuel prices should be totally deregulated so that the market can determine prices that give consumers a breather,” Du Buisson concludes.
Issued by Theuns du Buissonm, Economics Researcher, Solidarity Research Institute (SRI), 18 May 2022
