Editorial: The coming catastrophe

What are the policy options? [View this email in your browser]( FROM THE NEWSROOM June 2, 2022 [Mail & Guardian]( [Twitter]( [Facebook]( [Instagram]( [YouTube]( Hi there, Resilient, the term so often used by all commentators on the state of the economy that has, over the past decade, drifted and just barely managed to keep its head above water in the wake of an energy shortage, ever spreading corruption and a two-year battle against a pandemic. Those who have remained resilient against this rather depressing backdrop have been the consumer and, in the main, middle class people who have retained their jobs. Their disposable income levels have remained depressed since the 2008 global recession, yet domestic consumption is the biggest component of our economy. Their spending, whether it be in the shopping lines at the more upmarket Woolworths Food or at Shoprite — given the wide definition of middle class — is critical to keeping the wheels in our creaking economy greased. But the grease is running thin and is set to dry out in the weeks, months and possibly years to come as an “inflationary dragon” runs riot in not only our little corner of the African continent but globally. In just one month, the price of a whole [Woolworths]( chicken has risen by more than 10%, from R49.99 to R54.99 a kilogram. Purses are being squeezed. What was at best a blip of inflationary pressures as we opened up after the Covid-inspired lockdowns as supply chains creaked back into life again, is seemingly a much more long-lasting state for the world. Locally, our most direct and immediate pressure point is the price of fuel — felt by all segments of society — thanks to a country designed for vehicles. Now above R25 and nearing the R30 a litre mark as the European war drags on, the high fuel prices are feeding into the cost of food and other goods. Although our inflation levels have yet to breach the 6% mark set by the Reserve Bank, we are on the cusp of that breach, with some forecasting double digit inflation by early next year. Double digit inflation, with the highest unemployment figures in the industrialised world and lacklustre to no growth, fits the textbook definition of stagflation — persistent high inflation combined with high unemployment and stagnant demand in a country’s economy. What we have to ask is, in what shape will we emerge from this cycle, understanding that forecasting its length is a fool’s pursuit? We know that the Reserve Bank will stubbornly follow its mandate of raising interest rates. The treasury will be hard pressed to continue saving us from the full effect of high fuel prices as its sources of funding come under pressure because consumers are cutting back on spending. If these are the only policy options before us in this storm, we are set for a very long, bitter and deep winter. Our economic cluster — led by the finance minister, the Reserve Bank governor and the vanishing minister of trade and industry in Ebrahim Patel — often escapes scrutiny in times of economic crisis and we choose to rather focus on Number 1, Cyril Ramaphosa. This cluster needs to steer a course for the country through what will be turbulent waters for an as yet inconceivable amount of time and perhaps consider the extraordinary, rather than the tried and tested policy solutions. But ever fearful of market sentiment, it’s but a fool’s hope despite all evidence that resilience is crumbling. Until next week, The M&G newsroom [Subscribe now]( Enjoy The Ampersand? Share it with your friends [Share]( [Share]( [Tweet]( [Tweet]( [Forward]( [Forward]( [Share]( [Share]( Copyright © 2022 Mail & Guardian Media LTD, All rights reserved. You are receiving this email because you opted in to receive communications from the Mail & Guardian either at our website or by taking out a print subscription. Our mailing address is: Mail & Guardian Media LTD 25 Owl St BraamfonteinJohannesburg, Gauteng 2001 South Africa [Add us to your address book]( Want to change how you receive these emails? You can [update your preferences]( or [unsubscribe]( here.