Before I know it, another month sneaks up on me, and its time to put together another issue of SA Instrumentation & Control and to write my editor's column. Thinking of something new and meaningful to say in terms of the latter is a bit of a challenge. Do not get me wrong, I appreciate that this is a wonderful platform to express my opinion or just to talk about anything under the sun, but this does not make the decision of exactly what to talk about any easier. The topic that I have decided on is a brief discussion of an area of economics that is pertinent to the manufacturing industry.
I have recently embarked on a Certificate Programme in Economics. This is an enlightening experience for me because I am beginning to understand and give serious thought to some of the intricacies of how the world I live in works. One of the things that I find of particular relevance to me, and probably to every one of you, is the effect of war in the Middle East on everyday life in South Africa.
The oil price before the military conflict in the Middle East was already above $70 a barrel. Now with war in the region, it is realistic to expect that the oil price will keep on escalating. Rise in the oil price is a major contributor to inflation and prima facie, a possible course of action is for the Reserve Bank to raise interest rates to keep a lid on inflation.
However, an oil price increase on its own does not necessarily justify an interest rate hike because oil price increases will contribute to inflation only if it causes other prices to increase as well. In addition, a huge oil price increase is likely to cause an increase in petrol price which in turn causes consumers and producers to have less to spend on other things, and this then will have a depressing effect on the economy from the consumer's point of view.
In light of this, the Reserve Bank could consider the effect of rates increase on the economy and be flexible about its inflation target to avoid increasing interest rates to the detriment of the economy.
Despite sound reason for not raising rates, economists expect that interest rates will increase by 0,5% at each of the remaining Monetary Policy Committee meetings in August, October and December this year, with interest rates expected to reach 12,5% by the end of the year.
Now this economics-in-a-nutshell discussion would not be necessary if there was no escalation of war in the Middle East. On a personal note, I think that war is an unnecessary use of resources, and loss of life, particularly those of the innocent, and should be avoided at all costs. But I will leave this discussion for another time.
What might sound like bad news for consumers might not all be doom and gloom for the manufacturing industry. With the government committing more than R350 million to spend on infrastructure over the next three years as part of its Accelerated and Shared Growth Initiative, there is still some momentum to drive economic growth in South Africa.
It will remain a challenge for manufacturers to tap into this spending, but I, for one, look forward to reporting on the successes and outcomes of the Accelerated and Shared Growth Initiative.
Jaime Chan
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