Annual consumer inflation reached 7% in February. This is likely to increase when Eskom’s controversial 12.74% price increase is applied in April and trickles down into a cost-of-everything price increase for citizens.
This cost-of-living crisis only adds to the country’s collection of economic woes, which include world-leading inequality, an official unemployment rate around 33% and forecast economic growth of just 1.7% for the year ahead.
The reasons for SA’s well-publicised economic malaise are well documented. The country’s self-inflicted economic wounds have been written about at length. They include own-goals such as Tourism SA’s widely condemned leaked plans to sign on to a billion-rand sponsorship deal with Tottenham Hotspur at a time when service delivery for citizens is falling apart at every level.
That said, while there can be no denying that shortsighted public policy, widespread patronage networks and notorious “state capture” corruption scandals are key contributors to the nation’s economic malaise, it is worth pointing out that external factors are also in play when it comes to the increased cost of living. SA’s economic problems, like many of those experienced in similar developing markets, are being worsened by the unintended consequences of the fiscal and monetary policy choices of foreign governments.
Populist monetary policies sold as progressive measures in their domestic markets can and do have regressive consequences for the citizens of foreign markets, particularly those living in weak and developing economies in the global South. In particular here we can look to the global price effects of record-breaking Covid-era quantitative easing and other similar loose monetary policy choices. Money, being fungible, is wont to find its way into global markets. This is especially apparent when in comes to real resource allocations. Of particular note are the effects of global money supply increases on the prices of commodities and real estate.
The Cantillon effect explains how recipients of new money have a material advantage over those who do not receive new money endowments because of the time that sticky prices, or inflation, take to catch up with the increases in money supply. This in effect allows the fortunate recipients of new money to front-run the rest of the global market in purchasing really scarce resources, including food, energy and even land, at a lower real cost. Furthermore, once international price inflation catches up with regional monetary expansion global citizens bear a share of the net and cost-of-living increases without benefiting from increased real incomes.
A good example here can be seen in the increases in foreign purchases of SA real estate, which increased dramatically, both in terms of volume (up 28% in 2021 compared with the average for the previous decade) and value (R14.374bn in 2021 compared with the decade prior). This pattern reduces supply and increases domestic rentals, pricing local citizens out of the property market in a nation where 13.9% of households are still living in informal dwellings.
In a fair world weaker economies would be able to match the proportional monetary supply increases of their stronger counterparts to neutralise these effects. However, in the real world weak economies such as SA simply do not — admittedly for good reason — have the credibility to adopt the radical monetary policies of the likes of the US without risking potentially catastrophic capital outflows.
This means that in effect, even if not in intent, the Covid-era grants and so-called helicopter money drops in rich nations have enriched, in real terms, the citizens of those rich nations at the expense of the citizens of poorer, weaker nations who did not vote on and do not benefit from foreign monetary policy.
As such, if the real and relative cost and quality of living of the majority of humanity not fortunate enough to live in rich, developed nations is worthy of concern, we would do well to consider foreign complicity in compounding the domestic troubles of poorer neighbouring markets when it comes to monetary policy choices.
