Strikes put pressure on interest rates

2011-07-30 14:56

The current wave of worker strikes would make it tricky for the central bank’s Monetary Policy Committee (MPC) to make an interest rate decision in September, as wage increases higher than the inflation rate would create higher levels of consumer spending, it emerged this week.

Higher consumer spending would, in turn, force a definite hike in the inflation rate.

According to Roeloff Horne, director at ­MitonOptimal Multi Asset Management, this means the top end of the bank’s inflation target of 6% will be reached earlier than generally ­expected in the first quarter of next year.

Horne said that as consumer spending had a direct influence on core inflation, the MPC would be forced to look at increasing the repo rate at an earlier stage.

“This is in sharp contrast with the pressure from trade unions to keep the interest rates as low as possible to support job creation,” Horne said.

“The situation will require the SA Reserve Bank to choose between the prescriptions of the trade unions for lower interest rates, and sound ­economic practices which would command ­higher rates.”

He said strikes and demands for wage increases higher than the inflation rate were “highly inappropriate” if local economic activities and foreign appetite for investments in the country were taken into account.

On Thursday, South African gold miners went on strike, becoming the latest workers to go on strike over salaries.

Scheduled to begin with a night shift, the strike action would involve thousands of workers.

It will impact negatively on some of the JSE-listed gold mines like AngloGold Ashanti, Harmony and Gold Fields. NUM is demanding 14% pay hikes, rejecting the companies’ offers of between 7% and 9% increases.

This action comes at a time when gold prices have surged to record highs of more than $1 600 (about R10 690) an ounce.

A related strike began at the start of the week in the coal sector. This caused Anglo American to stop production at its coal mines.

Workers of the world’s biggest diamond house, De Beers, downed tools last Friday.

“To demand wage increases higher than the inflation rate at this stage is counterproductive and extremely unjustifiable.” 

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