Inflation has broken through the 10% barrier — raising fears that South Africa is entering a period of “cost push inflation” as trade unions warn they intend to ask for double-digit increases for workers.
Cost push inflation occurs when rising inflation pushes up prices, including wages, which in turn drive up other prices.
This week, Statistics South Africa announced that the year-on-year increase in the key measure of inflation, CPIX, had broken through the 10% level for the first time since 2002. CPIX, which is the consumer price index minus the impact of mortgage rates, was 10,1% higher last month compared with March last year. This is the 12th consecutive month that CPIX inflation has been above the South African Reserve Bank’s target range of 3% to 6%.
Month-on-month CPIX rose by 1,6% from February to March. Much of the increase was driven by rising transport and food costs: together these two factors accounted for 1,3% of the month-on-month rise.
Congress of South African Trade Unions (Cosatu) spokesperson Patrick Craven said: “The statistics revealed by Statistics South Africa completely vindicates Cosatu’s campaign of protest against rising food prices in particular. Food inflation alone accounts for 51% of the expenditure of low-income earners, running 13,5% per year. This means that hundreds of the poorest families are in a desperate situation.
“The government must urgently review the level of grants for pensioners and families with children to cushion the poorest families from the devastating effect of these increases.”
Craven said that Cosatu and its affiliates will bargain very strongly for a double-digit pay increase to compensate for the loss of income in real terms caused by inflation.
Trade union Solidarity calculates that the average cost of living increase for its members is between 1% and 2% higher than the increase in inflation.
According to the union’s spokesperson Jaco Kleynhans, wage increases are intended to ensure that workers’ salaries keep pace with inflation. “Our first step will therefore be to negotiate for double-digit salary increases for our members. An increase above 10% is needed to enable people to maintain their current standard of living.”
Solidarity also proposes a temporary reduction in taxes on fuel and some basic foodstuffs. “We should also like more to be done to encourage local production, and hence competition between local producers. South Africa imports too many products and increases in the cost of these products further increase the inflation rate.”
Kleynhans said that inflation could be countered by tackling the country’s skills shortages. “If we can retain our own skills and train more people in scarce skills, local production will benefit, which will result in lower prices. Solidarity intends to increase the number of people undergoing training by the trade in scarce skills.”
The union is appealing to the Reserve Bank not to announce another interest-rate increase in June. “It is our view that the Reserve Bank has done all that it could to curb inflation. More interest-rate hikes will increase the inflation rate and harm economic growth. What we need to do is to fix the input side of the economy.
“For this we need better infrastructure and more skills, as well as mechanisms to encourage investment. Government must play a role to create a climate that is conducive to production,” said Kleynhans.
The good news is that level of food price inflation should start to fall over the next few months, said Stanlib Asset Management economist Kevin Lings.
“In order for the annual rate of food inflation to maintain the current level of over 15%, food prices have to rise by more than 1,2% every month,” he said. “That is relatively high, even by recent standards.”