The South African Reserve Bank is unlikely to cut interest rates in the near future.
A spectre is haunting the South African economy - the spectre of stagflation.
The South African Reserve Bank (Sarb) is the one arm of the state that stands between the economy and this demonic force. And that is why it is unlikely to cut interest rates any time soon.
Stagflation grips an economy when it is afflicted by a trifecta of woes that orthodox economic theory once held should not occur simultaneously: high inflation, high unemployment and a low rate of economic growth or contraction.
If unemployment is low, inflation should be frothy because the vast majority of the working-age population has a steady income, underpinning demand for goods and services.
A tight labour market also lifts wages - a cost to business that must be absorbed or passed on to consumers - as workers can be fussy about who they work for and the compensation they receive for their labour. This in turn fuels inflation.
The backdrop here is typically economic growth that has shifted into a high gear.
By contrast, if unemployment is high, inflation should be subdued, as demand will recede and wage hikes slow as the bargaining power of employees erodes. The backdrop here is usually...
