On a global scale, inflation has been rising rapidly in both developed and developing countries. This rising inflation rate is mainly a result of Covid-19 and, at the beginning of 2022, the Russian-Ukrainian war. These two events have disrupted the ...
The inflation monster has caused the Governor of the South African Reserve Bank to panic by increasing the repo rate by 0.75% to an upward trending repo rate of 5.5%. This increase is the highest single increase since September 2002, and those increases 20 years ago pushed the country into a recession.
For the first time in decades, the South African inflation rate is lower than the US and the UK . Another example is Poland, whose inflation rate has reached 15.6% with a repo rate of 6.5%, as the fastest-growing Western country over the last 20 years. Hyperinflation is caused by the rapid rise in the money supply, or in other words, the printing of money by the government. Many countries, including SA, are also experiencing another type of inflation, namely stagflation, where output falls, but the price level rises.
These numbers confirm the cost-push inflation environment in SA. The excluded products drive our inflation rate to a much greater extent than most of our trade partners, including the US, at 5.9%. Core inflation has fallen since March 2022 in this country. Monetary policy, as currently implemented, usually causes even lower economic growth and subsequent job losses. The increase in interest rates will not reduce fuel and electricity prices, the main drivers of price increases across the board in the current economic environment.
Central banks, however, could decide to allow this type of inflation to remain high, expecting the cost-push inflation to be of short-term impact and not permanent because it is driven mainly by energy costs and as a result of the Ukraine war. For example, the high fuel price is expected to be temporary. The Sarb has, however, used monetary policy over the last decade to keep inflation at a low level, even in a cost-push inflation environment.
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