http://www.engineeringnews.co.za
  SEARCH
Login
R/€ = 16.31Change: -0.01
R/$ = 14.22Change: 0.03
Au 1292.99 $/ozChange: 1.84
Pt 1079.50 $/ozChange: 3.50
 
 
Note: Search is limited to the most recent 250 articles. Set date range to access earlier articles.
Where? With... When?








Start
 
End
 
 
And must exclude these words...
Close Main Search
Close Main Login
My Profile News Alerts Newsletters Logout Close Main Profile
 
Agriculture   Automotive   Chemicals   Competition Policy   Construction   Defence   Economy   Electricity   Energy   Environment   ICT   Metals   Mining   Science and Technology   Services   Trade   Transport & Logistics   Water  
What's On Press Office Tenders Suppliers Directory Research Jobs Announcements Letters About Us
 
 
 
RSS Feed
Article   Comments   Other News   Research   Magazine  
 
 
Jul 08, 2009

‘Rigid' application of inflation targeting a ‘costly mistake', Stiglitz avers

Back
Acting as if low consumer-price inflation was necessary and almost sufficient for economic stability was a mistake, Prof Joseph Stiglitz said during a visit to South Africa. Camerawork: Nicholas Boyd; Editing: Darlene Creamer.
 
 
 
Africa|Cutting|Efficiency|Finance|System|Systems|Africa|Product|Systems
Africa|Cutting|Efficiency|Finance|System|Systems|Africa|Systems
africa-company|cutting|efficiency|finance|system|systems-company|africa|product|systems



Nobel Memorial Prize winning economist Prof Joseph Stiglitz reiterated his stance that the "rigid" application of inflation targeting by central bankers had contributed to the onset of the current economic crisis and that containing inflation needed to be balanced with other concerns, such as sustaining growth and maintaining financial stability.

He added that it had been a "costly mistake" for governments to have pursued the policy excessively, but he stressed that he could not comment directly on the application of the policy in South Africa.

Speaking ahead of a lecture, which he delivered in the Great Hall at the University of Witwatersrand on Wednesday, Stiglitz argued that many central banks had made the "mistake" of "acting as if low consumer-price inflation was necessary and almost sufficient for economic stability".

"I don't think anybody believes that anymore," he quipped, adding that it was a product of the poor application of economic theory.

The models employed by central bankers highlighted the distortions caused by relative price changes associated with moderate inflation.

But, Stiglitz, who was in South Africa for a meeting of the so-called Africa taskforce of the Initiative for Policy Dialogue, which would take place of in Pretoria on Thursday and Friday, argued that the losses in economic efficiency caused by the meltdown of the financial system were larger by an order of magnitude.

"So, they were focusing on something that was really a second, or third order of magnitude, when they should have been focusing on something that was really important," he averred.

Inflation could become a serious problem if left uncontrolled. But, the authorities had to be certain that the application for interest rates could actually affect prices, particularly in developing economies where much of the inflation was caused either by external or imported factors, or administered price increases.

It was, therefore, at times, "absurd" to place the full burden of containing such prices on interest rates. "In some cases bringing inflation down through the raising interest rates was akin to the "cure being worse than the disease", as wage inflation was brought under control at the expense of job losses.

The Columbia University professor's censure comes at a time when some economists, supported by South Africa's largest labour federation, the Congress of South African Trade Unions, were intensifying calls for the South African Reserve Bank (SARB) to be released from its single mandate of maintaining inflation within a target band of between 3% and 6%.

These calls were amplified recently, after governor Tito Mboweni put a halt to what had been a rapid loosening in monetary policy when he failed to lower rates after the June meeting of the Monetary Policy Committee (MPC). The repurchase rate was unexpectedly kept at 7,5%, with inflation slowing less than expected to 8% in May.

Prior to the latest MPC decision, the bank had cut its key rate by a material 450 basis points since December as its attention shifted to economic growth as South Africa slumped into its first recession in 17 years.

However, many inflation-wary economists have argued that the SARB had not been overly rigid in its application of inflation targeting, particularly as the current crises evolved. They have noted, for instance, that the bank had continued cutting rates despite the fact that inflation had remained stubbornly out of range and above expectations.

Further, inflation-targeting advocates have stressed that the policy had been pursued locally in the context of continued financial stability, supported by sound financial-market regulation, the absence of which was the true cause of the meltdown.

Finance Minister Pravin Gordhan said last week that South Africa would keep its policy of targeting inflation, which had helped to stabilise prices and encouraged economic growth.

Stiglitz agreed that poor regulation had been at the main cause of the collapse in the US banking system, which led to the global financial crisis.

He added that most governments had already moved to more flexible inflation targeting systems. "It has become just one of the list of things that monetary policy has to look at. And, that's the way I think it ought to be."

Edited by: Creamer Media Reporter

To subscribe email subscriptions@creamermedia.co.za or click here
To advertise email advertising@creamermedia.co.za or click here
 
Comment Guidelines (150 word limit)
 
 
 
 
 
 
 
 
 
Latest News
Environmental Affairs Minister Edna Molewa
Cabinet has extended the contract of Department of Environmental Affairs (DEA) director-general Nosipho Ngcaba and approved the appointment of Limpho Makotoko as the new DEA COO.     “Under the leadership of Ngcaba, the DEA has consistently received clean and...
Mzwandile Masina
The Department of Trade and Industry (DTI) has invited companies to participate in a trade and investment mission to Ghana and Nigeria from August 8 to 12.   Companies in the agriculture and agroprocessing sectors, built environment professionals, automotive and...
Cabinet has approved the Industrial Policy Action Plan (Ipap) 2016/17 to 2018/19, which seeks to achieve a higher-impact industrial policy in difficult economic circumstances, including the difficulties faced by the domestic steel industry and the drought which has...
More
 
 
Recent Research Reports
Automotive 2016: A review of South Africa's automotive sector (PDF Report)
Creamer Media’s Automotive 2016 Report provides an overview of South Africa’s automotive industry over the past 12 months. The report provides insight into local demand and production, vehicle imports and exports, investment and competitiveness in the sector, as well...
Energy Roundup – April 2016 (PDF Report)
The April 2016 roundup covers activities across South Africa for March 2016 and includes details of a North Gauteng High Court Judge’s dismissal of a court application to postpone the 9.4% electricity tariff increase, which the National Energy Regulator of South...
Electricity 2016: A review of South Africa's electricity sector (PDF Report)
Creamer Media’s Electricity 2016 report provides an overview of South Africa’s electricity sector, focusing on State-owned power utility Eskom and independent power producers, electricity planning, transmission, distribution and the theft thereof, besides other issues.
Energy Roundup – March 2016 (PDF Report)
The March 2016 roundup covers activities across South Africa for February 2016 and includes details of the Department of Energy’s plans to announce the preferred bidders for the first tranche of the coal independent power producer procurement programme; the Council...
Steel 2016: A review of South Africa's steel sector (PDF Report)
Creamer Media’s Steel 2016 Report examines South Africa’s steel industry over the past 12 months. The report provides insight into the global steel market and and particularly into South South Africa’s steel sector, including production and consumption, main...
Construction 2016: A review of South Africa's construction industry (PDF Report)
Creamer Media’s Construction 2016 Report examines South Africa’s construction industry over the past 12 months. The report provides insight into the business environment; key participants; local demand; geographic diversification; corporate activity; black economic...
 
 
 
 
 
This Week's Magazine
The two spent-fuel pools at Eskom’s 1 800 MW Koeberg nuclear power station, in the Western Cape, will be full by 2018, increasing the urgency on the State-owned utility to begin pursuing alternative storage options. Koeberg has, over the past 32 years, accumulated a...
South Africa lacks the skills necessary to implement the government’s plan to build 9.6 GWe of new nuclear energy capacity, warns nuclear-qualified Quality Strategies International CEO David Crawford. “Apart from the concern about the affordability of the programme,...
DOROS HADJIZENONOS The 700-series devices provide network security monitoring, app control, URL filtering, VPN security, antivirus, antispam, antibot, and advanced intrusion prevention and detection functionality
Cybersecurity multinational Check Point has released its latest 700-series cybersecurity systems for small businesses, which draw on its international threat intelligence to provide up-to-date cybersecurity, says Check Point South Africa country manager Doros...
Daimler Trucks and Buses Southern Africa (DTBSA) saw a marked slip in new-vehicle sales in 2015 compared with 2014, with sales dropping from 5 897 units to 5 300 units. The decline came as the South African new truck and bus market declined from 31 558 units in 2014...
Group of 20 (G-20) economies threatened to penalise havens that don’t share information on their banking clients after the leak of the Panama Papers provoked a global uproar over tax evasion. The G-20 will consider “defensive measures” against financial centers and...
 
 
 
 
 
 
 
 
 
Alert Close
Embed Code Close
content
Research Reports Close
Research Reports are a product of the
Research Channel Africa. Reports can be bought individually or you can gain full access to all reports as part of a Research Channel Africa subscription.
Find Out More Buy Report
 
 
Close
Engineering News
Completely Re-Engineered
Experience it now. Click here
*website to launch in a few weeks
Subscribe Now for $149 Close
Subscribe Now for $149