Govt could help lower inflation rate

2008-06-03 00:00

Enhanced co-ordination by the government in respect of various “administered-priced goods” could lower South Africa’s inflation rate by as much as 1,5%, according to a senior economist.

Administered prices, which are determined by the state and its monopolies, could benefit greatly from a co-ordinated effort aimed at maximising the efficiency of the system, says Dynamic Wealth chief economist Professor Chris Harmse.

He told The Witness that this category makes up a significant portion of the CPIX basket.

Charges in this category include municipal rates, property taxes, electricity tariffs, landline and cellphone tariffs, school and university fees and costs associated with public hospitals and transport.

Noting that administered prices represent inflation which is not sensitive to interest rates, Harmse added that the implementation of a co-ordinated annual programme would ensure that the state “does its bit” in order to fight inflation.

“An indaba on inflation in relation to products and services where prices are regulated should be held every year.

“If there is a three-to-six-percent target, then these administered prices must keep to [within] this band.”

Harmse conceded that rampant oil and food prices remain the main drivers of inflation.

However, he noted that the inflation landscape has changed in SA.

He argued that administered prices and food prices account for almost half of the CPIX basket, adding that the combined rate of increase in these two categories shot up to 15,2% in March 2008 (CPIX: 10,1%).

In contrast, he said, interest-rate-sensitive inflation is now much lower at 5,2%, although this is also on the increase.

Harmse expects inflation to remain above the target range of three to six percent during 2008 and 2009.

“High inflation expectations may lead to third-round price increases,” he warned.

“Already unions are talking about wage increases of 11% to 15%. If productivity does not increase by five percent to nine percent, there will be more upward pressure on CPIX.”

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