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Wynand Meyering: A response to Cosatu lashing out at SARB's Lesetja Kganyago

If you want the highest possible economic growth, the inflation target should be zero in the economy, maintains a Fin24 user.

Wynand Meyering, who is an entrepreneur, was responding to an article in which the Congress of South African Trade Unions (Cosatu) took a swipe at SA Reserve Bank (SARB) governor Lesetja Kganyago. The labour union federation accused the Reserve Bank of entrenching apartheid economic policy.

READ: Cosatu berates SARB governor Lesetja Kganyago

Why is low inflation critical to the economy?

The misconception that Cosatu has is that prices is not important in business. If the average prices in China rises at 1.5% and in South Africa at 5%, in which country will the jobs in the next year be created? Everything in South Africa costs 5% more and in China 1.5% more - clearly in China.

The country that has the lowest price increases for electricity, for water, for transport, for machines, for food, to do business in the economy in the next year will do better than the country in which everything costs far more the next year.

Imagine in 10 years, the cost of doing business is 10 times 5% = 50% more expensive in South Africa and only 10 x 1.5% = 15% more in China - that's approximately. So it's economically incorrect to think that more jobs will be created in the country in which inflation keeps rising much faster than the country in which inflation remains low.

People invest in countries where there is real economic growth, that is where productivity growth is much faster than inflation. If everything in a country costs much more expensive than the previous year, from electricity to water, food and imported vehicles, who would want to start a business in such an environment?

In fact, it is clear that the best business environment to start a business in is one where prices for food, electricity, water and transport remain constant or zero and economic growth is as high as possible.

If you want the highest possible economic growth, the inflation target should be zero in the economy. That's the best environment to do business in - where prices don't increase relative to your international competitors. Zero inflation. That's the best environment that creates jobs - no increases in business costs, yet higher production and far more sales.


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