Weak rand spells inflation rise
Price hikes could hit consumers, but boost the Port of Richards Bay's exports
AS the rand continues to lie low, currently skulking around R11/$, Zululanders may soon have to dig deeper into their pockets for food inflations, consistent fuel price hikes and increased interest rates from the South African Reserve Bank.
According to Head of Department of the Economic Faculty at the University of Zululand Dr I Kaseeram, businesses cannot continue to weather the hard-hitting consequences of the economic slump.
‘For the last few years, the rand has been on a depreciating trend, yet inflation has not been rising significantly – in fact inflation decreased in December,’ said Kaseeram.
‘This implies that businesses have not been passing on a large portion of their costs from low demand, but instead, been tolerating profit reductions.
‘However, this scenario cannot persist indefinitely.
‘Rising input costs will force businesses to raise prices so we can expect a rise in inflation over the next few months.
The biggest challenges expected are rising food prices and transport costs with the petrol price going up by 30 cents a litre next Wednesday.
‘This will force trade unions to demand higher wages so businesses will face further cost increases,’ Kaseeram said.
Inflation is forecasted to rise above the 3%-6% target between August and September this year and will subsequently cause the Reserve Bank to push up the Repo rate.
The positives
While the lagging rand increases the cost of imported commodities such as crude oil and maize, it significantly improves export earnings, which is mostly beneficial to this region.
‘Actually, a weak rand is likely to be good for this region since our exports become cheaper to foreigners.
‘Thus we should see increased demand for all our primary commodities which are exported via Saldana and Richards Bay.
‘Moreover, all tourism, agri-business and mining-related industries in the region earning from foreign exchange ought to do well.’
Looking forward, Kaseeram said it is critical to improve the rand to attract foreign investment on both short and long terms.
‘To achieve this, the South Africa authorities must address uncertainties around mining rights for potential investors, reduce fiscal deficits and improve service delivery to avoid unrest related activities.’
