Mixed picture clouds Kganyago’s timing

One of my favourite things I read last week was David Shapiro’s column in Business Day on his family visit to the US.

After the past 18 months of Covid-19 lockdowns and isolation, stories of people being reunited with their loved ones have brought out the sentimentalist in me. This one also made me think back to a different age when calling someone a “globalist” or, to quote former UK premier Theresa May, a “citizen of nowhere”, was not meant as an insult.

On the other end of the scale, in the Twitter universe, I finally got to listen to one of my predecessors, Songezo Zibi, talking to the governor of the Reserve Bank, Lesetja Kganyago. And they both had me thinking about the inflation story that has been brewing globally for months now.

Talk of stretched global supply chains and tight labour markets in rich countries can seem to be of little significance to people’s everyday experiences. But it might not be long before the impact is felt in SA if the result is higher interest rates sooner than we expect.

Since the Covid-19 outbreak, SA has not had much to celebrate on the economic front, with the Reserve Bank’s ability to provide significant and sustained monetary support among the few bright spots. The lowest official rate in about five decades has provided stimulus for companies and helped working people by keeping a lid on what they need to pay to service debt on car loans and mortgages. That is more money they have to spend on other things, helping to support some of the entrepreneurs profiled in Business Day’s Monday edition.

The Bank’s repo rate has been at 3.5% since July 2020, having been cut by 2.75 percentage points in the wake of the national lockdown. It has kept it there even as other emerging markets such as Brazil, Russia, Mexico, the Czech Republic and Hungary have started to tighten policy.

BIGGER CONCERN

Kganyago is, of course, happy to take credit for this. It is precisely because of the prior decisions by the Bank that kept inflation under control that SA has been able to enjoy historically low borrowing costs and support the economy through the

Covid-19 shock, he has argued.

The question that has been occupying economists is whether that is about to change. Advanced economies have largely opened up, having managed to vaccinate many in their populations. After a decade when the worry was how to keep prices from rising too slowly, or even falling, inflation has now become a bigger concern.

In the US, consumer price inflation is way above target and is running at the fastest pace since 2008, prompting US Federal Reserve (Fed) policymakers to indicate that they are talking about tapering their bond purchase programme, which has been injecting about $120bn a month into the US economy.

That spooked the markets and was one of the factors behind the rand weakening to more than R15/$. Tighter policy in the US may translate to greater demand for dollars, drawing from riskier markets such as SA, something that may force the Reserve Bank’s hand if the rand were to weaken enough to have it worried about its 3%-6% inflation target being breached on the upside.

Shapiro’s travels gave a mixed picture. Boston seems to be resembling what I saw in the UK. Over there, it was hard to find a restaurant or supermarket that was not looking for workers. I even saw one looking for chefs, inviting applicants of “all abilities”. I wondered if they would consider me with my zero ability.

This job even came with an offer of free lodging. So-called “golden hellos ” used to be the preserve of investment bankers, but supermarkets are now reportedly paying out such inducements to attract truck drivers, with nursing homes desperate for care workers as well. If only SA had such problems.

Just last week it was reported that Nando’s in the UK had to close a 10th of its restaurants due to shortages of chicken, which it cannot really do without. The UK services industry has also had to deal with Brexit, which caused foreign workers to leave and discouraged new arrivals.

So far the major central banks say the inflationary pressures are “transitory” and there are no long-term inflation concerns, though those that are paying premium prices to fill positions are not convinced.

While shelves are not exactly empty, consumers cannot take it for granted that their favourite brands will be easily available.

But for now at least, the markets believe the reassurance from the central banks. Markets did wobble last week, but the mood remains benign. Even the rand is more than 10% stronger than it was a year ago.

Based on how Shapiro describes New York — with empty premises, absent tourists and fewer yellow taxis — they may have a point. Perhaps, to paraphrase Citigroup former CEO Chuck Prince’s now notorious comments made just before the outbreak of the global financial crisis, the music is not back on and some more stimulus is needed before people “get up and dance”.

Back at Twitter Spaces with Zibi, Kganyago gave every indication that what happens in the US or the UK won’t be driving what he does from Pretoria.

At the height of the lockdown crisis, he received criticism for not following the examples of US and UK peers by creating new money in what is called quantitative easing. In comments that he repeated in parliament, he said he was not anxious about the inflation outlook in SA, giving every indication he will not be mimicking others on the way up either.

If the Fed and the Bank of England are indeed behind the curve, he might have little choice.

AFTER A DECADE OF WORRYING HOW TO KEEP PRICES FROM RISING TOO SLOWLY, INFLATION IS NOW A BIGGER CONCERN

KGANYAGO GAVE EVERY INDICATION THAT WHAT HAPPENS IN THE US OR UK WILL NOT DRIVE WHAT HE DOES FROM PRETORIA