Deflation a bigger worry than inflation as another rate cut is expected soon
The South African Reserve Bank’s Monetary Policy Committee (MPC) meets this week, with another rate cut expected to be announced on Thursday.
However, it is uncertain whether the cut will be as drastic as the last two 100 basis point cuts announced in March and April,
My hope is a 100 basis points. Given the fact that the economy is in such a deep depression at the moment and that inflation is going to fall more... But I suspect maybe they'll go for something slightly less.Johan Els, economist - Old Mutual Investment Group
The headline is that I'm far more worried about deflation in the SA economy than inflation. We'll get the April number next week that will probably be three per cent. And then we are down to two per cent in May and June. And that's lower than the Reserve Bank expected at their previous meeting. So that means that in an economy like SA and all the other issues around quality improvement etc. - it may be very difficult to say we have any sense of inflation at all when we measure two per cent. If I were the central bank I'd be far more worried about deflation than inflation.Johan Els, economist - Old Mutual Investment Group
When we get to negative price increases - let's just recap - we've had some of that in some categories before. Remember in the late 90s when Trevor Manuel as part of policy reform in SA cut import tariffs on a whole bunch of electronic goods - prices actually fell. But when actual total inflation goes there, you and me,we just wait for prices to fall further before we make the next purchase. That is the danger - it puts off production, it puts off employment. When we don't buy because prices keep on falling that's deflation and that's a negative impact on economic growth.Johan Els, economist - Old Mutual Investment Group
Listen to the full interview below.
Get the 10 most-read articles of the week from Bruce Whitfield’s The Money Show, emailed to you every Friday morning.
This article first appeared on 702 : Deflation a bigger worry than inflation as another rate cut is expected soon
Lester Kiewit speaks to Business Insider's Andrew Thomson to find out about the firms diversifying during the time of Covid-19.Read More
The cigarette ban has killed the oldest store in South Africa. Lester Kiewit interviews Sturks Tobacco Shop owner Diane Chakim.Read More
Only very serious wrongdoing will get one declared a “delinquent director for life”, says Advocate Fay Mukaddam.Read More
National and business leaders have had to make some difficult decisions and will be expected to make many more as the crisis continues.Read More
The Purchasing Managers' Index remains dismal, stuck, depressed - suggesting subdued activity.Read More
As expected, the total lockdown that was in force resulted in almost zero vehicle sales.Read More
Covid-19 and the lockdown is a highly complex situation that will require new thinking that evolves over time.Read More
"Rwanda - they don't feel sorry for themselves. They don't blame foreigners or the rest of the world," says Nicky Verd.Read More
"I’m here for work purposes," says EWN reporter Petrus Botha.Read More
Expect a petrol price hike of about R1.20 per litre as the world economy gets into gear once more.Read More