1 00:00:00,280 --> 00:00:02,640 Speaker 1: So a very difficult day today, I think, with many 2 00:00:02,640 --> 00:00:05,440 Speaker 1: people trying to fill up with petrol try and beat 3 00:00:05,559 --> 00:00:09,080 Speaker 1: the price hike. A difficult day tomorrow in a different way, 4 00:00:09,160 --> 00:00:12,479 Speaker 1: maybe not such long cues, but we are faced with 5 00:00:12,880 --> 00:00:17,479 Speaker 1: the three rand fuel levy. Rebate or cut. It's not 6 00:00:17,520 --> 00:00:21,600 Speaker 1: a rebate relief, I should rather call it, notwithstanding the 7 00:00:21,640 --> 00:00:25,880 Speaker 1: prices are still eye watering lee high. The other question 8 00:00:25,920 --> 00:00:28,160 Speaker 1: we're going to have to consider over time is if 9 00:00:28,200 --> 00:00:31,200 Speaker 1: this goes on for a while and the war in 10 00:00:31,240 --> 00:00:33,559 Speaker 1: the Middle East shows no sign of abating that I 11 00:00:33,640 --> 00:00:38,440 Speaker 1: can see with any particular degree of optimism, is this 12 00:00:38,760 --> 00:00:42,680 Speaker 1: relief may need to be prolonged, and every tank of 13 00:00:42,720 --> 00:00:46,199 Speaker 1: fuel that gets put in government will have less amount 14 00:00:46,280 --> 00:00:48,640 Speaker 1: of money in its tank. Some of you might say 15 00:00:48,680 --> 00:00:51,159 Speaker 1: that could be a good thing, might prompt them to 16 00:00:51,200 --> 00:00:52,919 Speaker 1: be a little bit more careful with the way they 17 00:00:52,960 --> 00:00:57,160 Speaker 1: spend public money. But it is something of a dilemma 18 00:00:57,200 --> 00:00:59,400 Speaker 1: if you look at the South African economy as a whole. 19 00:00:59,560 --> 00:01:02,400 Speaker 1: So we balance all of this. Kevin Lynx is chief 20 00:01:02,440 --> 00:01:06,360 Speaker 1: economist at stand Lib Asset Management and he's with us 21 00:01:06,400 --> 00:01:09,280 Speaker 1: on seven ZHO two drive. Mister Lyn's welcome and thanks 22 00:01:09,319 --> 00:01:12,080 Speaker 1: so much. For giving us your time. If you look 23 00:01:12,160 --> 00:01:16,160 Speaker 1: at overall good government with six billion rand less money 24 00:01:16,200 --> 00:01:20,080 Speaker 1: to spend in April versus South Africans with more money 25 00:01:20,080 --> 00:01:23,720 Speaker 1: in their pocket and inflation a little bit less out 26 00:01:23,720 --> 00:01:26,600 Speaker 1: of control than it would be with a higher fuel price, 27 00:01:26,920 --> 00:01:29,600 Speaker 1: Is this the best balanced choice? 28 00:01:30,200 --> 00:01:31,959 Speaker 2: Hi, John, Yeah, it's not a bad it's not a 29 00:01:31,959 --> 00:01:34,960 Speaker 2: bad choice. I think it's actually quite a sensible choice. Obviously, 30 00:01:35,000 --> 00:01:39,080 Speaker 2: the ideal would be if government had the fiscal ability 31 00:01:39,280 --> 00:01:42,560 Speaker 2: to pay for the whole increase, right right, But we 32 00:01:43,280 --> 00:01:46,840 Speaker 2: just can't afford that. It's just even the six billion. 33 00:01:47,360 --> 00:01:51,240 Speaker 2: You know, if you said immediately to National Treasury, we're 34 00:01:51,320 --> 00:01:54,200 Speaker 2: going to find six billion, they wouldn't know. It's not 35 00:01:54,280 --> 00:01:57,280 Speaker 2: as if we've got that amount of money set aside 36 00:01:57,320 --> 00:02:00,480 Speaker 2: in the budget or there was nothing like this in there. 37 00:02:01,000 --> 00:02:04,600 Speaker 2: And then you know, obviously the government has been on this, 38 00:02:04,600 --> 00:02:07,720 Speaker 2: this in this long process of trying to get South 39 00:02:07,720 --> 00:02:11,680 Speaker 2: Africa's fiscal position in much better shape, and that matters 40 00:02:11,760 --> 00:02:15,120 Speaker 2: hugely to a lot of dynamics in South Africa. So 41 00:02:15,160 --> 00:02:17,840 Speaker 2: it's not something you just want to give up on it. 42 00:02:17,840 --> 00:02:20,760 Speaker 2: It's not you know, government government could say okay, well 43 00:02:21,360 --> 00:02:24,040 Speaker 2: we'll just borrow more money, so we'll get ourselves more 44 00:02:24,080 --> 00:02:27,880 Speaker 2: into debt and will help the consumer that way. And 45 00:02:27,919 --> 00:02:31,560 Speaker 2: that may sound like, you know, something that would be beneficial, 46 00:02:31,600 --> 00:02:34,720 Speaker 2: but the long term implications of getting yourself more into 47 00:02:34,760 --> 00:02:37,080 Speaker 2: debt are huge for this country because we've got too 48 00:02:37,120 --> 00:02:40,040 Speaker 2: much debt to start with, so that's not really an option. 49 00:02:40,160 --> 00:02:43,240 Speaker 2: So they've done, I think something that is sensible. It's 50 00:02:43,280 --> 00:02:47,600 Speaker 2: a bit of a compromise. Obviously it works okay if 51 00:02:47,639 --> 00:02:50,720 Speaker 2: the war ends quite soon, because then presumably the oil 52 00:02:50,760 --> 00:02:53,600 Speaker 2: price comes down. The petrol price will come down quite 53 00:02:53,680 --> 00:02:56,400 Speaker 2: quickly on the back of that, and when you get 54 00:02:56,440 --> 00:03:00,680 Speaker 2: to reintroduce the fuel levey, then it's not as damaging. 55 00:03:00,880 --> 00:03:04,520 Speaker 2: So this can be okay for South af We can 56 00:03:04,600 --> 00:03:08,000 Speaker 2: we can kind of make our way through it if 57 00:03:08,040 --> 00:03:13,640 Speaker 2: the war ends, like quite soon last month. If this 58 00:03:13,720 --> 00:03:16,680 Speaker 2: thing carries on, then we've got a whole different ballgame, 59 00:03:16,760 --> 00:03:21,240 Speaker 2: because obviously the government can't afford six billion every single month. 60 00:03:22,080 --> 00:03:24,880 Speaker 2: You do that for two months, three months, this becomes 61 00:03:24,919 --> 00:03:29,240 Speaker 2: unworkable and so the government would be forced to reintroduce 62 00:03:29,320 --> 00:03:31,640 Speaker 2: the fuel levy and so you would end up with 63 00:03:31,720 --> 00:03:36,080 Speaker 2: another significant fuel increase on top of whatever the oil 64 00:03:36,080 --> 00:03:39,400 Speaker 2: branch is doing. And that would put everything under pressure, 65 00:03:39,400 --> 00:03:42,520 Speaker 2: put the economy under pressure, put inflation under pressure. Obviously, 66 00:03:42,560 --> 00:03:45,520 Speaker 2: worry about higher interest rates from the Reserve Bank. There 67 00:03:45,520 --> 00:03:48,760 Speaker 2: are lots of implications of this. So this is a 68 00:03:48,960 --> 00:03:54,520 Speaker 2: short term measure. It's sensible. It provides a bit of relief, 69 00:03:54,680 --> 00:03:57,560 Speaker 2: not entirely, as you say, the increases are enormous as 70 00:03:57,600 --> 00:04:00,920 Speaker 2: they stand. And then you've got to hope that this 71 00:04:01,080 --> 00:04:02,400 Speaker 2: thing ends fairly soon. 72 00:04:02,880 --> 00:04:08,000 Speaker 1: Yeah, and then what about legacy effects, because you know, 73 00:04:08,120 --> 00:04:10,840 Speaker 1: I've heard the expression prices go up like rockets and 74 00:04:10,920 --> 00:04:16,200 Speaker 1: come down like feathers. This will ward off some degree 75 00:04:16,200 --> 00:04:19,680 Speaker 1: of inflation, but there may be people for whatever reason, 76 00:04:19,720 --> 00:04:22,440 Speaker 1: you just step in and say, hey, listen, I'm going 77 00:04:22,520 --> 00:04:24,800 Speaker 1: to act early at one make me popular, but I'm 78 00:04:24,839 --> 00:04:27,960 Speaker 1: expecting my input costs to go up. I'm going to 79 00:04:28,040 --> 00:04:32,080 Speaker 1: raise my prices. They never come down as quickly. Are 80 00:04:32,080 --> 00:04:36,080 Speaker 1: we inevitably going to get a substantial degree of inflation 81 00:04:36,200 --> 00:04:40,440 Speaker 1: out of this the mitigating steps notwithstanding. 82 00:04:43,120 --> 00:04:47,120 Speaker 2: Yes we are, and you're exactly right. So what will 83 00:04:47,120 --> 00:04:51,280 Speaker 2: happen is the inflation rate goes up immediately because of 84 00:04:51,320 --> 00:04:54,640 Speaker 2: the petrol pricing increase. So that's a fairly automatic calculation. 85 00:04:54,839 --> 00:04:57,520 Speaker 2: So to give you some idea. You know, before the 86 00:04:57,560 --> 00:05:00,240 Speaker 2: war started, we were looking at inflation in a will 87 00:05:00,279 --> 00:05:02,560 Speaker 2: be in three point one percent. Now we're looking at 88 00:05:02,600 --> 00:05:05,440 Speaker 2: it being four percent. So you could say, well, you know, 89 00:05:05,480 --> 00:05:07,559 Speaker 2: it's not the end of the world, but of course 90 00:05:07,600 --> 00:05:13,039 Speaker 2: that's just the start. Because as soon as you're transporting goods, people, 91 00:05:13,760 --> 00:05:16,279 Speaker 2: a whole range of things that feeds into every aspect 92 00:05:16,320 --> 00:05:20,120 Speaker 2: of the economy, then companies some companies will absorb the 93 00:05:20,160 --> 00:05:22,920 Speaker 2: price increase, but others will pass it on, and so 94 00:05:22,960 --> 00:05:26,560 Speaker 2: you'll get the longer lasts what we call second round effects. 95 00:05:26,600 --> 00:05:30,760 Speaker 2: The pass on effect will permeate throughout the economy. If 96 00:05:31,320 --> 00:05:34,720 Speaker 2: this thing lasts for a month and the petrol price 97 00:05:34,839 --> 00:05:37,080 Speaker 2: is down quite nicely after that, then those knock on 98 00:05:37,160 --> 00:05:40,000 Speaker 2: effects will be fairly muted. But you're still going to 99 00:05:40,160 --> 00:05:42,960 Speaker 2: end up with the residual effect. You're not going to 100 00:05:43,000 --> 00:05:45,280 Speaker 2: be able to move away from that. And that residual 101 00:05:45,320 --> 00:05:48,320 Speaker 2: effect is there will be some prices that go up, 102 00:05:48,360 --> 00:05:51,520 Speaker 2: and even if the petrol price comes down, those prices 103 00:05:51,560 --> 00:05:55,480 Speaker 2: won't ratchet down. And you can watch things like airline 104 00:05:55,560 --> 00:05:59,200 Speaker 2: fares or taxi fares, or you know, the cost of 105 00:05:59,760 --> 00:06:03,440 Speaker 2: fear in the shop is that number reduced, and invariably 106 00:06:03,600 --> 00:06:06,560 Speaker 2: it's not, so you end up with a higher cost 107 00:06:07,000 --> 00:06:11,279 Speaker 2: for the household sector. What you hope is that it 108 00:06:11,360 --> 00:06:16,800 Speaker 2: doesn't then become very extensive into every single component of 109 00:06:16,800 --> 00:06:20,160 Speaker 2: the economy, which it will do the longer this lasts. 110 00:06:20,279 --> 00:06:24,120 Speaker 2: It will literally permeate throughout the entire economic system, and 111 00:06:24,160 --> 00:06:27,520 Speaker 2: then you end up with an embedded, much high inflation rate. 112 00:06:27,560 --> 00:06:30,560 Speaker 2: And obviously the Reserve Bank they want the three percent 113 00:06:30,640 --> 00:06:34,119 Speaker 2: inflation target achieved. They were there, they were our current 114 00:06:34,200 --> 00:06:38,280 Speaker 2: inflation eighty three percent, and they were excited about that. 115 00:06:38,520 --> 00:06:40,839 Speaker 2: Now we're going to move way away from that. So 116 00:06:40,880 --> 00:06:42,680 Speaker 2: what are they going to do. They're going to be saying, well, 117 00:06:42,760 --> 00:06:45,560 Speaker 2: maybe we need to put up interest rates in order 118 00:06:45,600 --> 00:06:48,160 Speaker 2: to try and get our inflation rate back to this 119 00:06:48,320 --> 00:06:52,400 Speaker 2: target three percent. And again it's a very worthwhile thing 120 00:06:52,480 --> 00:06:55,360 Speaker 2: to achieve over time, so you don't want to give 121 00:06:55,440 --> 00:06:56,960 Speaker 2: up on that. You don't want to give up on 122 00:06:57,000 --> 00:07:00,800 Speaker 2: fiscal discipline at the government level. These are important, but 123 00:07:00,880 --> 00:07:03,400 Speaker 2: you want to be about sensible about it. So the 124 00:07:03,480 --> 00:07:06,039 Speaker 2: Reserve Bank will be cautious in how they high green 125 00:07:06,240 --> 00:07:09,279 Speaker 2: interest rates, won't be that aggressive, They'll be mindful of 126 00:07:09,320 --> 00:07:12,720 Speaker 2: what it does to the economy. Likewise, that's exactly what 127 00:07:12,800 --> 00:07:16,240 Speaker 2: Treasury's doing, so I think there will be a thoughtful reaction, 128 00:07:16,840 --> 00:07:20,239 Speaker 2: but ultimately it's going to do damage in the short term, 129 00:07:20,480 --> 00:07:23,720 Speaker 2: and invariably it'll do some damage in the medium term, 130 00:07:23,920 --> 00:07:26,280 Speaker 2: even if the war ends quite soon. 131 00:07:26,920 --> 00:07:32,680 Speaker 1: Thanks so much, Kevin Lynk's chief economist at STANDLB asset Management.