Cause Of Inflation In South Africa

1. Introduction:

Just like any other country in the world South Africa is faced by the problem of Inflation in the economy. Inflation is one of the most important macroeconomic objectives and is supposed to be taken into consideration in any economy, as its effects can be so devastating. According to Mohr and Fourie and Associates inflation is a continuous and considerable rise of prices in general.

2. Literary review

Causes of Inflation

Inflation means there is a continued increase in the price level. The main causes of inflation are either excess aggregate demand (economic growth too fast) or cost push factors (supply side factors).

2.1. Demand pull inflation

If the economy is at or close to full employment then an

Cost Push Inflation

If there is an increase in the costs of firms, then firms will pass this on to consumers. There will be a shift to the left in the aggregate supply. Cost push inflation can be caused by many factors:

2.2.1. Rising wages

If trades unions can present a common front then they can bargain for higher wages. Rising wages are a key cause of cost push inflation because wages are the most significant cost for many firms. (Higher wages may also contribute to rising demand)

2.2.2. Import prices If there is a devaluation then import prices will become more expensive leading to an increase in inflation. A devaluation or depreciation means the rand is worth less, therefore we have to pay more to buy the same imported goods.

2.2.3. Raw Material Prices

The best example is the price of oil, if the oil price increase by 20% then this will have a significant impact on most goods in the economy and this will lead to cost push inflation. For example is there is a spike in the price of oil this will cause a temporary rise in inflation.

2.3. Profit Push Inflation

When firms push up prices to get higher rates of inflation. This is more likely to occur during strong economic

Stagflation is described by low commercial development, low internal demand and rising inflation. According to Chris Hart, the main strategist at Investment Solutions, South Africa is in a “stagflation trap”, commercial development has been drifting downward as 2010. Across the alike era, inflation has been persistently close to the higher group or beyond of the South African Supply Bank’s target range. In 2014, the country’s economy shrank by 0.6% in the early quarter and inflation broke across the supply bank’s target group of 3% to 6%, grasping 6.6% for the month of May, well up from 6.1% in April. There have been supplementary notice signals, such as low development at the bottom of an attention rate