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The government (i.e. Reserve Bank, Statistics Office, and national treasury) uses a very narrow measure of price inflation in the economy. They track mainly the consumer price index to guide money printing policies.
This ‘official’ price inflation rate produced by StatsSA and monitored by the SARB to guide money printing policies (called inflation targeting), increased at a rate of 5.5% in September compared with a year ago. Consensus economists expected an increase of 5.2% y/y, so the increase ‘surprised’ economists to the topside.
Readers of this blog will have been anticipating an acceleration of price inflation at the CPI level for a long time now.
In April 2012, I wrote
This means, that under the surface, price inflation is bubbling, and will rear its ugly head again toward year-end and going into 2013.
On the same day, I wrote
Following the increase of residential property prices comes more credit extension at the household level, higher retail sales, as well as a reallocation of capital toward the retail sector. That means price inflation momentum is higher looking into 2013.
The business cycle upswing is alive and kicking.
In May I wrote
Our view still remains that following the surge of credit and money growth in h2 2011, the new money in the economy will make its way to the consumer level and result in a decline of demand to hold cash balances, and boost consumer spending and hence also consumer price inflation in the second half of the year.
…the 12% increase of money supply since May 2011, that is now beginning to work its way through to the consumer sectors, and you have an inflation cocktail that will be served in 2013.
More recently, in August
However, at some point, if the price inflation of input costs (commodities) persists as it is now, producers exhaust the extent to which they can reduce the quality and quantity of products offered, and they start to pass on higher prices to consumers. This is when price inflation flares up.
Also in August, after discussing the strength of the listed property sector and what it means I wrote that
Next, however, comes the strength in the consumer sectors as this money works its way through the economy, as well as accelerating price inflation.
I could go on, but you get the point. This acceleration of the official price inflation rate is no surprise at all.
So while consensus economists and government continue to focus on a mostly meaningless measure of prices, the consumer price index, the Reserve Bank has boosted the money supply by 10% in the last year, the JSE All share index is up by 18% in the last year, and the gold price is up 15% in the last year.
That’s the real inflation rate folks. Don’t be distracted by the monetary cranks in the central bank, commercial banks, and government. Keep your eye on the ball.