Low inflation rate continues to support business recovery from a cost perspective

26th November 2020

By: Creamer Media Reporter


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This article has been supplied as a media statement and is not written by Creamer Media. It may be available only for a limited time on this website.

The Steel and Engineering Industries Federation of Southern Africa (SEIFSA) is pleased to see that the inflation rate continues to remain within the monetary policy target range of 3% to 6%. This supports the monetary policy committee’s decision last week to leave the repo rate unchanged at 3.5%, citing challenges in the South African economy and a low inflation rate projection into 2021.

Data from Statistics South Africa shows that inflation in South Africa rose to 3.3% in October from 3% the previous month and well below the 4.6% recorded for February 2020 before the advent of the COVID-19 crisis.

According to SEIFSA Chief Economist Chifipa Mhango, during stable economic times, the South African inflation rate is relatively higher than current levels. “Low inflation can be a signal of economic problems because it may be associated with weakness in the economy,” he explained, adding that when unemployment is high, as is the case currently at 30.8%, consumers spend less and businesses become reluctant to make investments. “This lower demand keeps prices low and this is what we can expect to see in South Africa at present,” he said.

Mr Mhango said the current global economic slowdown amid COVID-19 lockdown restrictions meant that global producer price inflation and oil prices would remain low, as would local food price inflation. “This is encouraging for the Metals and Engineering Industries as the current low inflation rate environment will help to cushion cost pressures to some extent, particularly on raw materials,” he said.

However, Mr Mhango said, although the current low inflation environment and supportive monetary policy had eased financial conditions and improved the resilience of domestic households and businesses from the negative impact of economic implications of COVID-19, it had not improved the economic growth rate of the local economy, nor had it reduced the risks associated with the fiscal position of South Africa. “More still needs to be done through structural reforms to address the challenges faced by South Africa on the economic front, to lower the costs of doing business in SA and increase investment across all of the sectors of the economy. Rising energy costs and logistical costs remain the biggest business cost challenges for the Metal and Engineering Industries,” he concluded.

Edited by Creamer Media Reporter



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