The coming inflation

I HATE to be the bearer of bad news all the time. But circumstances don’t permit otherwise. In the last monetary policy statement of July 31, the State Bank said “inflation is likely to remain on downward path over the next 12 months”. But it is difficult to see how this will happen. There are a couple of reasons to believe why inflation may have peaked. First is what they call the “base effect”, which basically means that inflation was so high the same time last year that the percentage increase between the price level back then and now will be small. What this means is that the rate of growth will be small, not that inflation will ease. Given how stupendous high inflation already was the same time last year, this is small solace. Second, the State Bank also pointed to “expected lagged impact of the accumulated monetary tightening so far, budgeted fiscal consolidation, and the tepid growth outlook for FY24” as reasons why inflation may slow. This is possible, although today the drivers behind surging inflation have multiplied and how they behave in the months to come is hard to forecast. What is also hard to forecast is whether or not the “budgeted fiscal consolidation” will actually materialise, and whether the “tepid growth” will actually dampen inflation more than the factors that are actually driving it.