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Low CPI indicative of weak demand

Inflation as measured by the consumer price index (CPI) eased somewhat during August Statistics SA announced today.

A closer look reveals that interest rates could have been lower and that the South African Reserve Bank moves too slow and not enough in its efforts to limit the impact of Covid-19 and the lockdown.

The CPI for August 2020 increased by 0.2% from July and 3.1% from a year ago. Both increases were lower than in July, when it increased by 1.3% compared to June, and 3.2% compared to June 2019.

When the CPI is broken down into two categories – the prices where government is involved in price determination (including health, education, electricity, water and fuel) and the prices determined by the private sector – an interesting picture is revealed, namely that government-involved prices increased by 4.9% compared to a year ago, while private sector determined prices increased by 2.5%, totalling an average of 3.1%.

UASA believes in a time where many South Africans are finding it difficult to make ends meet, government should relook the pricing of utilities such as water and electricity to lessen the load on consumers.

The low increase – much lower than the Reserve Bank’s target of 4.5% - revealed that interest rates could have been lower and that the Reserve Bank moves too slow and not enough in its attempt to limit the impact of Covid-19 and the lockdown. However, as CPI is projected to increase gradually over the course of the year and next year, indications are that the Reserve Bank will not lower interest rates any further – unless another shock hits the economy.

The low increase also seems to be due to the lack of demand in the economy. This is expected to continue for a while as the effects of the restrictions on trade during lockdown as going to be felt for some time to come 

For further enquiries or to set up a personal interview, contact Stanford Mazhindu at 074 978 3415


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