The Reserve Bank’s MPC school challenge draws to a close this week. Just in time for these learners to make their repo decision, the first quarter GDP growth numbers have been released. Economic growth was slower, but not as slow as economists expected. Remember, if growth is weak the SARB would have to have very bad inflation expectations to raise rates. You might argue that the weak growth is a reason to cut the repo rate. However, with the current uncertainty (and potential calamity) in the EU and weak global growth prospects, such stimulus is likely to be wasted in credit fueled consumption spending, rather than leading to investment and job creation. To our minds everything points to keeping the repo unchanged. But don’t just take our word for it, have a look at what others are thinking:
Following the Master’s degree graduation ceremonies earlier this week the NWU Potchefstroom Campus awarded PhD degrees today. The School of Economics is proud to have a student in the line-up.
The new Dr Bernard Bongsha worked with his supervisor Dr Henri Bezuidenhout on a thesis about the impact of trade liberalisation on the manufacturing sector in Cameroon. Here is a short abstract of the work:
The manufacturing sector has historically been seen as synonymous to economic growth. Countries with large manufacturing sectors have achieved higher standards of living. In Cameroon an earlier policy of Import Substitution Industrialisation has resulted in the growth of firms that lack economies of scale but survive as a result of protection. Recently, trade liberalization has been embraced to encourage competitiveness and industrial development. It has been expected to lead to greater competition and the development of the manufacturing sector, but the results from Cameroon show otherwise. This article utilises the single equation supply model and the gravity model to determine the impact of trade liberalisation on the manufacturing sector. The results from the models indicate that the manufacturing sector has not strived as expected based on the a priori predictions of theory. The study recommends that an industrial policy, based on the revealed and latent comparative advantage of the Cameroonian economy, should be developed. In addition the government needs to create an enabling environment that supports the development of the manufacturing sector without itself being the producer. Infrastructure, institutions, human capital and a competitive environment need to be developed. These results may also be applicable to the wider Sub-Saharan Africa.
Congratulations to the student and supervisor!
The April CPI inflation numbers are out and they provide some interesting info for participants in the MPC School challenge. The year-on-year rate is slightly up to 6.1%. The key drivers seem to be food and non-alcoholic beverages (8.7%), transport (6.9%) – with petrol at 20% – as well as electricity (17.1%) and water and other services including assessment rates (9.2%). These increases may make the case for keeping the repo unchanged. If these inflation rates set consumers’ inflation expectations and wage demands, any arguments in favour of a rate cut will have to present some convincing forecasts of lower inflation for these categories.
In a nice blog post John Loos explains that increases in the prices of items that are high-frequency purchases, such as food and fuel, add to consumer skepticism about the “low” level of CPI inflation. If you were renting a house and buying a new car, you would have benefitted from the small increases in the prices of these items! If you were buying food and putting fuel in your car, the opposite is true. Unfortunately the nature of current inflation is such that it is the lower-income groups that experience higher levels of inflation.
There may be more to this story of consumers’ experience of inflation and inflation expectations than just the calculation of averages or a lack of understanding of how the CPI is put together. The cover story of this week’s Financial Mail reports that new weights will be attached to the goods and services in the CPI basket in January 2013. The weights represent the portion of the average consumer’s income that is spent on different items – when calculating the inflation rate, an increase in the price of rice cannot be weighed the same as an increase in the price of petrol. The current weights were introduced in 2009, based on the 2005/06 Income and Expenditure Survey. Since then spending patterns may have changed and the weights will be updated using the results of the 2010/11 IES. In the article Claire Bisseker writes:
FM readers can be forgiven for feeling that the official consumer price inflation figure of 6% does not reflect their personal experience. This is partly because the CPI basket is underweight in precisely those items that many South Africans are forced to spend their income on.
…products and services with administered prices — like electricity and municipal rates and services — which most consumers have no choice but to pay, have generally been increasing far in excess of the general rate of inflation.
This same story goes for food. It is expected that the new CPI basket will bias inflation upwards. It is clearly something to keep in mind.
Hierdie week word die Herfs Meestersgradeplegtigheid en PhD-gradeplegtigheid op kampus gehou. Die Skool is trots op die 10 Meestersstudente wat vandag graad gevang het. Baie geluk aan die studente en hulle studieleiers.
|Ricardo da Camara||The price and volatility transmission of international financial crises to the South African equity market||Dr Andre Heymans|
|Marnel Ferreira||The role of access to finance in the growth of firms in South Africa||Prof Marianne MattheeProf Waldo Krugell|
|Alicia Fourie||Green economics: A case study of South Africans’ willingness to pay for climate change mitigation||Prof Waldo Krugell|
|Kobus Lamprecht||A comparison of the characteristics of internationalizing SMEs in South Africa and the BRIC countries||Prof Marianne Matthee|
|Francois Liebenberg||The volatility spillover effect of a dual listed stock for international markets||Dr Chris van HeerdenProf Andrea Saayman|
|Tommy Pietersen||The role of selected Investment Promotion Agencies in South Africa to attract Foreign Direct Investment||Dr Henri BezuidenhoutProf Ludo Cuyvers|
|Jolene Steenkamp||Current practices and guidelines for classifying credit risk boundary events: A South African approach0||Dr Andre Heymans|
|Jaco van der Walt||The effect of the financial crisis on credit scoring in the retail credit market in South Africa||Prof Gary van Vuuren|
|Jan van Greunen||Determining the impact of different forms of stationarity on financial time-series analysis||Dr Andre Heymans|
|Wikus White||The role of securitization and credit default swaps in the credit crisis: A South African perspective||Prof Gary van Vuuren|
As jy nuuskierig is om te sien hoe so gradeplegtigheid agter die skerms uit ‘n dosent se oogpunt lyk, kyk na hierdie kort video wat Prof Krugell gemaak het!