Inflation and interest rate increases have been the talk of the town for some time now, but what does this mean for South Africans?

We are just emerging from the depths of a pandemic, where global economic activity came to a near halt, albeit temporarily. During the early days most countries instituted lockdowns of varying degrees and many governments and central banks put stimulus measures in place to try to encourage consumers to do what they do best — consume!

Specifically, in the US there has been some debate on whether the level of stimulus was appropriate, and looking back now at face value it is unsurprising that inflation is increasing aggressively considering the vast amount of money the US Federal Reserve pumped into the hands of US consumers.

That would be a nice, clean-cut explanation, which we could all likely accept. Unfortunately, as is usually the case with economics, it is not that simple. Supply chain snarl-ups have also had a role to play. Granted, these are also linked to the pandemic, but they have not done anything to help matters.

In ultra-simple terms, demand for goods and services now exceeds supply, leading to increasing price levels. As you can imagine, problems in supply chains that lead to lengthy delays in goods being delivered to the ultimate customer worsen this supply-demand imbalance.

But wait, there’s more. On top of all that we have a war in Ukraine (commonly referred to as the “breadbasket” of Europe), which has historically produced vast quantities of grain that many countries depend on heavily. On the other side of the coin is Russia, which is now a heavily sanctioned nation that previously supplied a large amount of oil, fuels and other energy exports to Europe and the rest of the world.

This leads to further upward pressure on food and oil prices as there is in effect less of these essential resources to go around, which also stokes the flames of inflation.

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