A Weak Rand Policy is an Anti-Poor Policy

I noticed following my post yesterday that many people have no context of historical prices. Some also make the incorrect assumption that it is the rising price of fuel that has driven the price of burgers higher. This is a fallacy. It is the declining purchasing power of the Rand, which is basically what the Reserve Bank’s inflation targeting aims to achieve, that is driving prices of everything higher.

In order to get perspective on actual price inflation of food products over the past ten years, refer to the National Agricultural Marketing Council’s Food Price Monitor.

There you will find reports that go back to 2002.

In April 2004 a 700g loaf of brown bread for retail cost R2.83. Today, it costs R8.24. Price inflated by: 190%.

In Sep 2002 a liter of fresh milk cost R3.87. A liter of long life milk (reduced quality, long life milk has been heavily processed to reduce transport costs and extend shelf life) now costs R9.73. Price inflated by: 150%.

In Sep 2002 2.5kg of white sugar cost R11.33. Today, it costs R22.41. Price inflated by: 100%.

In Sep 2002, 250g of margarine cost R1.79. Today, it costs R15.94 for a 500g tub, halve it to get the equivalent price. Price inflated by: 345%.

Since 2002, Rand money supply in the economy is up by 244%. By increasing the number of Rands circulating in the economy at a faster rate than supply of these goods increase, the Reserve Bank drives price inflation higher. Had Rand money supply not changed, the prices of all the above mentioned goods would have fallen or been unchanged, except for Margarine.

In other words, by increasing the supply of Rands in the economy, the value of Rands decline. A falling value of the Rand means the purchasing power of the Rand declines. A falling purchasing power basically means you need to exchange more Rands to buy what you used to buy before.

If your salary cannot match or exceed the rate of money supply increases, you are becoming relatively poorer.

The bottom line is, by creating monetary inflation, the Reserve Bank is making most South Africans, read: the poor and unemployed, and those on fixed salaries, even poorer. A weak Rand policy is inherently an anti-poor policy and is extremely destructive to the economy, as it creates the boom and bust business cycle, drives income inequality wider, and also creates social discontent.