South Africa’s economy, like many other economies globally, has had a bumpy start to 2022, notes Chris Blair, CEO at remuneration firm 21st Century. The Ukraine-Russian war, volatility in international financial markets, inflationary pressures, etc. have caused an economic environment that threatens to spill over into a global recession.
South Africa’s economy, like many other economies globally, has had a bumpy start to 2022, notes Chris Blair, CEO at remuneration firm 21st Century.
The Consumer Price Index report, published by Stats SA in June 2022, showed that the lowest two expenditure deciles – the 20% of people who spend the least – faced the highest inflation rate with the lowest decile facing 9.1% and the second lowest decile facing 8.5%. The SA Reserve Bank has acted in accordance with its mandate to keep inflation between 3% and 6%, and as a result, it increased the repo rate by 75 basis points . In theory, increasing the cost of credit will reduce the demand for it and therefore slow down the pace of ‘new money’ entering the economy via credit channels, said Blair.
A closer-to-home consequence is that credit-active households tend to spend less as they not only consolidate their expenditure in reaction to their new credit repayments but also become more averse to taking out any more credit at these interest rates, said Blair. “This dilemma is exacerbated further by salary increases that lag the increasing inflation and that are definitely lower than the inflation rates felt by low-income people.
“Until the world adjusts to the pressure placed on various supply chains by the Ukraine-Russian war and the impact it has had on global oil prices, this inflationary problem will persist around the world.
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