In 1994, a liter of 93 Octane Lead Replacement Petrol (LRP) cost R1.77.
In March 2013, the same liter of petrol may climb above R13 for the first time ever. The fuel price could rise by more than 80 cents when it is announced next week.
That’s a price inflation rate of 634% since the end of Apartheid. This is what that price trend looks like, in graph format.
What is so interesting about this that it is worth commenting on? Well, has your salary increased that much since 1994? What do you think this does to people in retirement who saved Rands from the 1950s to the early 1990s? What impact does this rising fuel price have on unemployed or poor people?
Food for thought.
The cause of the overall price inflation is the Reserve Bank that has the ability to create sustained price inflation in the economy. They target a price inflation rate of a maximum 6% per year. To do so, they increase the money supply (by manipulating the money supply they set interest rates, not the other way around as is commonly believed).
However, the Reserve Bank can’t control which prices rise and which fall (or rise the slowest). They are only interested in getting the overall price inflation rate to levels of between 3-6%. They do not focus on whether the prices of food and fuel are rising at a much faster rate than the overall price inflation rate, and that iPad or computer prices are falling to balance out the overall price inflation rate. In fact, they like to downplay the effects of these prices by looking at things like “core inflation” that strips out food and fuel from the overall inflation rate. Just this week Stats SA introduced a new measure of price inflation that excludes the most volatile prices from the inflation rate called the “trimmed mean”, which Patrick Kelly, executive manager of price statistics at Stats SA, said is to “eliminate the noise” from the numbers. Sadly, however, it is exactly the prices rising the fastest that impact the poor and unemployed people the most.
Below is a chart of how the post-Apartheid Reserve Bank has increased the money supply. Compare this chart with the petrol price above; Note how it follows the same trend as the petrol price.
The Reserve Bank has increased the money supply by more than 1,000% since 1994. It is a miracle that the price of fuel has not risen even more, or that price inflation has not accelerated dramatically in the economy. One reason this has not happened is because foreigners have been willing to invest in South Africa since the end of Apartheid. As I wrote the other day, there are signs that this trend of investment will soon start to reverse. Once this happens the tide will pull out and price inflation will break out like a serious Joburg hailstorm all over the country, in the prices of all goods and services.