New economic research by ETM Analytics has put South Africa in some dangerous company.
It shows those countries expanding their money supply the fastest are also the ones experiencing massive social tension.
Top of the list is Syria, with a Continuous Commodity Index (CCI) inflation rate of 60% since the start of 2010. South Africa comes in at fourth place with a CCI inflation rate of 30%, behind Syria, Turkey and Brazil.
“Now that South Africa is experiencing mass revolt against the government, labour unions and also employers, we revisit our longstanding argument that loose monetary policy by the Reserve Bank results in currency depreciation that pushes raw commodity prices higher at a rate in excess of wage rates, particularly that of lower-income earners, as well as the consumer price index,” states the research.
The CCI is a basket of 19 commodities, including food, fuel, industrial commodities and precious metals. It is considered a more accurate and instant measure of inflationary pressures because, unlike the consumer price index, monetary expansion is immediately reflected in the changing prices of the basket of commodities.
Chris Becker, market strategist at ETM Analytics, said monetary inflation – in effect, the speed at which central banks print money – was remarkably accurate at predicting future social unrest.
“The reason why the CCI is a better predictor of social unrest is that lower-income earners spend more of their incomes on raw commodities, as measured by the CCI rather than the consumer price index, which includes housing costs, technology, clothes and other items less likely to form part of the spending of a low-income household,” he said.
Most inflationary country
The research casts light on the economic triggers for social revolt, which are often overshadowed by the more proximate causes such as political demands for democratic accountability.
“When mass unrest broke out across the Middle East in early 2011, the central banks of those countries had presided over substantial monetary inflation that resulted in huge increases of raw commodity prices, which the lower-income groups of any population spend most of their incomes on,” said ETM Analytics.
Syria, now in the throes of an undeclared civil war, is the most inflationary country in the sample with a CCI inflation rate of nearly 60% over the past two years.
“Although the underlying cause of the unrest in Syria and South Africa may be different, the catalyst that brings civil unrest to a boil may very well be the same thing: loose monetary policy that results in high price inflation that squeezes the living standards of low-income earners, who tend to express their disapproval with economic conditions through violence and conflict,” states the research.
It is interesting to note that Turkey, Brazil, Argentina and India are also prominent money printers, leading ETM Analytics to conclude that these countries are at risk of civil unrest flaring up in coming months.
Alarmingly, South Africa is equally likely to face more social unrest, conclude the authors of the research.
“The Reserve Bank continues to focus on headline measures of price inflation – the consumer price index – to dictate monetary policy. Meanwhile, raw commodity prices that feed straight through to higher food and fuel prices that reduce the disposable incomes of low-income earners and unemployed people by the most continue to rise, which risks fuelling even more unrest.”