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Inflation leads to public violence: Chris Bekker – economist, ETM Analytics

Chris describes the “constant tug-of-war” playing out in the economy.

HILTON TARRANT: Chris Bekker is economist at ETM Analytics. New research published this morning proves public violence – the likes of which we’ve seen repeatedly over the past few years – is caused by high inflation. Chris joins us now.
   Chris, inflation, CPI, currently at 5, 5.5, 6% – what’s the problem?

CHRIS BEKKER: Good afternoon, Hilton. The problem is that the overall CPI index does not necessarily measure certain prices and how those prices impact certain income groups.
   So, for instance, what our research shows is that when you strip out luxury goods such as technology and things like vehicles and you focus on the important stuff that low-income groups would be spending most of their incomes on – foodstuffs, transport, public transport, you are talking healthcare, although we are not only looking at the low-income groups but also low-middle income groups looking at healthcare, and other costs such as that – price inflation is actually a little faster there. That means that when you are asking for a slightly above-CPI wage increase it might not necessarily be matching the CPI rate that you as a household or low-income earner is experiencing.
   And that’s where we think a lot of tension is arising, especially also between the labour unions and their members and then the capitalists of course, because always the capitalists and entrepreneurs are seen as sort of the evil party.

HILTON TARRANT: Chris, quantify this for us. That 6% – you say a little ahead – what is “a little ahead”. Is inflation on a non-discretionary item that these income groups would be feeling at 8%, 10%, 20%?

CHRIS BEKKER: Well, it’s not that high. And the way we would structure our research – I was looking at a quarter-on-quarter rolling annualised rate of increase, and that accelerated from levels of 3 to 4% in mid-2012 to levels of 10% here in October, which is where it topped out, and since then has moderated quite substantially.
   But when you get this sort of strong momentum increase in prices in things like food and transport and that, you’ll start to immediately feel it in you pocket when you go to the shop. When you go to the shop in June and you buy a trolley and it’s full, and you go in August, September, October and you are spending the same amount of money and you are only getting half a trolley or quite a bit less, you sort of ask the question: “Where’s my salary going?”
   And then you start to question how you can demand greater wages from an employer who’s only willing to grant you increased wages once a year, which is what typically happens in a cycle. It basically just breeds this underlying current of unrest: What’s going on, we’re not becoming better off; is government at fault, is business at fault, is it our employer?
   And then when you have a strike such as Marikana, it can tend to spread throughout the company.

HILTON TARRANT: How does unsecured lending fit into all of this, because we are seeing a rather complex situation emerging in many of these income groups that you speak of, where unsecured lending is really at unsustainable levels?

CHRIS BEKKER: Well, this is now another interesting thing. When you are looking at the mechanism of inflation and money creation, what tends to happen is, like I said, there’s no neutral effect to the way that money filters into an economy and how it affects people.
   What tends to happen in the inflation cycle is that your higher-income earners who have assets that they can collateralise to get credit are the first into the credit cycle. They get to borrow money that’s newly created by the Reserve Bank and the commercial banking system and they can then spend it before prices have increased. So they tend to be better off than lower-income earners.
   The lower-income earners, who get to access the money as it filters its way through the economy, they only get it after prices have increased and they find themselves in a worse off position than, say higher-income earners.
   This actually creates income inequality over time and is what we’ve been seeing in the economy. Now what is happening with the unsecured credit side is that lower-income earners are actually starting to borrow and to try and get back at the cycle. They might not be knowingly doing it, but certainly one way to try and get ahead is to try and borrow and spend money before everybody else does when interest rates are cut.
   And so there is this constant tug-of-war that’s actually playing out in the economy and the big boom in unsecured credit to us is an expression of that.

HILTON TARRANT: Thanks to Chris Bekker there.

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