Darleen > I feel it is far more than just SA inflation but US and possible world inflation
Inflation is an extremely complex subject even for those well-studied in it, which I am not. However, according my simplistic view, in an open market a markup in prices doesn't, on its own, cause inflation for the obvious reason that the purchaser doesn't have to buy. He has, in fact, the choice of a cheaper product or even an alternative. It follows that a sustained rise in prices can only occur when the buyer has to buy, in other words he has no free choice. However, if he doesn't have the funds, he simply can't buy and will have to forego the purchase, something which happens to every one of us every day. On the other hand, governments have unlimited power to buy and to pay --- by increasing the national "money supply". It therefore follows that for inflation to occur in a country the government has to support (manage) the price rises and the money supply has to increase. In the circumstances, the national debt will also increase but an increase in national debt is not necessarily an indication of inflation. The debt can occur without a rise in prices. On the other hand, an associated rise in prices, especially of assets, is usually a means for the state and the wealthy to minimize the relative value of the debt. Indeed, the price rises are burdensome only to those without assets.
So, as I see it, inflation is the ultimate result of an increase in the national money-supply (ie printing more money or creating debt) and is instituted as a means to avoid recession by the state which attempts to intervene as a purchaser on account of the lack of purchasing power of the populace.
Presumably, for inflation to occur world-wide all governments have to feel like this so it's apparent there has to be an underlying reason for all the economies to be similarly and simultaneously affected. In the late 1970s it was because of the massive increase in the oil price and the refusal of OPEC countries to accept US dollars for the purchase of their oil. You may recall that's when the price of gold went to $850 --- but only for a brief moment. I do not believe that similar conditions exist today, not even remotely. In fact, it's quite clear that even with the interruption of Iraqi oil supplies the oil price has remained low (although prior to the war there was speculation that both would be severely affected).
> Simply put products from SA have doubled in cost from Rand at 8 to 15.
I think you are confusing the 60% appreciation of the rand in the past 18m with the rate of inflation, which is 12.5% pa.
bday.co.za
>>>The Bank's targeted inflation measure, CPIX (consumer inflation less mortgages), increased by an annual 11,2% last month, compared to 11,3% in February, while headline inflation was unchanged at 12,5%, according to data released by Statistics SA yesterday.<<<
Still, 12.5% pa is an unacceptably large inflation rate, especially for an economy which grows at less than 3% pa and whose principal exports are derived from mining, agriculture and tourism and therefore have to be highly competitive. You may be unaware that the long-term SA Government treasury bond interest rate is 12% so it's clear that this represents a negative return on cash so invested. Foreigners who can take advantage of the appreciating currency, however, get the best of both worlds --- high interest plus a gain on the currency transaction, but only for as long as this windfall lasts. As you see, the situation is extraordinary --- an appreciating currency in the face of considerable inflation and minimal national growth. That's why I say the money must be coming in for a "non-investment" reason, in other words, to avoid confiscation, or whatever, somewhere else. What I find amazing is that the SA government is so complacent, in fact apparently happy, about a situation which is, in effect, destroying the main sources of income of the country.
> The exporter increases costs the importer must pass those costs on as his internal operations costs have not changed but his profit margin has decreased
As I discussed above, it's not compulsory that anyone buys SA products. They are not unique and they are not special. If the price is too high the deal is lost and eventually the increased costs will destroy the local business. One doesn't have to be a rocket-scientist to work that out.
> we are not seeing new high pay job growth to decrease the potential of debt default
That's for sure. In fact, I can only envisage belt-tightening, chest pains and white knuckles from hanging-on grimly, in all countries, and for many years into the future. Meanwhile, the young people in most places, certainly in SA, have expectations of living in the lap of luxury and doing little work --- because that's how it was in the 1990s. |
