An economy can weather a lot of storms, but stagflation can hit it like a tsunami. The concept broadly refers to a state of affairs where the economy is barely growing or contracting, jobless rates are high and inflation – which should be subdued in such an environment, according to classical economic theory – accelerates rapidly.
This is probably optimistic given the threat posed by load shedding and potential ratings downgrades, among other things. With this backdrop, one would expect inflation to be nothing but moderate, perhaps even dis-inflationary. But pressures are building in the price pipeline. On Thursday, Statistics South Africa released producer price data for March.
The main measure of consumer inflation, CPI, was 4.5% in March, up from 4.1% the previous month, so it is also bubbling. This does not mean it will come to a boil. Higher producer prices may not automatically get passed onto consumers, in large part because of the bearish factors weighing on prices in the first place.“This makes it almost impossible to pass on those increases without losing market share. “ This means that producers have to find ways to trim costs and boost productivity.
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