Rand tumbles to R7.41/$

rand is going to drop all the way to R8.50 maybe even R9.00
you guys can qoute me on this one

and then petrol is going to sky rocket to R8 p/l

and then inflation is going to hit food hard

and then we sit were we where 10 years ago, with high inflation and low growth
and unemployement is going to be ever higher since we have nicompoops running our country which will divert all the funds to their pockets

Go africa go
 
supersunbird : If the basket of goods goes up in value, then Inflation goes up. If *only* the price of petrol goes up, and nothing goes down, then there will be an increase in Inflation. But these things dont happen in isolation. The price of other goods go down, keeping the level of inflation stable. The 50 basis points increase is designed to preempt inflation going up
 
janvanriebeek : If the echange rate hits R8-R9 : $ (which it very well might) the petrol price will sure as hell not hit R8.

Where the hell do you come up with this?
 
anvanriebeek : If the echange rate hits R8-R9 : $ (which it very well might) the petrol price will sure as hell not hit R8.

Where the hell do you come up with this?
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the exchange rate buffered us against most of the oil price rises, once the rand has fallen, every oil price rice will be felt

petrol is currently around R6.50 p/l and there will be another hike within a few months and so it will continue
 
You go on living in your theory world and I'll go living on in the real world.

The fuel prices will increase, all produce cost will increase due to transport cost increasing due to fual increase, all imported items will be more expensive (or stay the same due to decreases in their international price). Even the few items (food and some other stuff) produced in South Africa will cost more due to transportation costs (and general greediness enabled by an excuse).

Only ones that will benefit will be exporters and maybe the people they will hire to cope with increased demand. The rest will be less able to buy the things they want (TV's, computers, cars). Its not as if the exporters give the extra money to all the people being able to buy less.

Thus inflation happens due to exhange rate changes. Not the only factor, but one of them.
 
JStrike said:
supersunbird : As I mentioned, an increase in the price of fuel/food/etc is called inflation.

Inflation doesn't happen due to exhange rate changes. What most often happens is that the prices of certain things goes up and others down (or wages increase, etc)
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Not totally true.

There are two main causes of inflation (forgive me, all those who have studied economics)
(1) Cost Push
(2) Demand Pull

Cost push inflation is caused by the rising prices of inputs. So, if for example, the price of petrol goes up, the cost of transport will rise, which will be cause the price of goods to rise, which will cause inflation. Since we produce only about 40%(?) of our fuel locally, we are reliant on importing fuel. If the rand depreciates, the cost of fuel in rands increases, and by the mechanism described above, we have inflation. This holds true for all imported goods.

Demand pull inflation is caused by too much money chasing too few goods. It is related to consumer spending and rising debt levels. This is not really affected by the exchange rate, but is more affected by the interest rates. Essentially, it is this type of inflation that Mboweni is controlling by his 'inflation targeting' policy.
 
Tassidar said:
Not totally true.

There are two main causes of inflation (forgive me, all those who have studied economics)
(1) Cost Push
(2) Demand Pull

Cost push inflation is caused by the rising prices of inputs. So, if for example, the price of petrol goes up, the cost of transport will rise, which will be cause the price of goods to rise, which will cause inflation. Since we produce only about 40%(?) of our fuel locally, we are reliant on importing fuel. If the rand depreciates, the cost of fuel in rands increases, and by the mechanism described above, we have inflation. This holds true for all imported goods.

Demand pull inflation is caused by too much money chasing too few goods. It is related to consumer spending and rising debt levels. This is not really affected by the exchange rate, but is more affected by the interest rates. Essentially, it is this type of inflation that Mboweni is controlling by his 'inflation targeting' policy.
Click to expand...

Yes, that's what I'm trying to say. Just didn't know the terms. Tassidar is so eloquent :)
 
Is there any way we can merge the two exchange rate threads (moderators?). It seems a bit pointless to have two threads essentially discussing the same thing.
 
JStrike said:
janvanriebeek : If the echange rate hits R8-R9 : $ (which it very well might) the petrol price will sure as hell not hit R8.

Where the hell do you come up with this?
Click to expand...
Not quite. The international oil price (actually refinery gate prices in Augusta, Singapore and Mina-al-Ahmadi) is the primary driver of the Basic Fuel Price (BFP), which is the bit of the fuel (petrol, diesel and paraffin) price that fluctuates from month to month. This price is denoted in US dollars and so the exchange rate has an enormous effect on it. eg, the Rand dropped 15% against the US dollar since mid-May, if this was all taken into account at once it would mean a total petrol price of approximately R7.00 at the moment (the oil price also increased slightly over the same period, but this effect would be insignificant compared to the exchange rate movement).

Luckily, both effects are averaged over three months, so we would probably only feel the full effect in August. The oil price or the R\$ exchange rate may also improve over the same period.
 
Tassidar : You have to look at the entire basket of goods, before you can say that cost push inflation (or demand pull for that matter) is taking place. And this cannot be measured until we see the effect on goods prices (And higher wages levels) caused by increased exports.

Exports will increase no matter what. It is by what level that is interesting. As I said elsewhere, our exporters had to learn some hard lessons last time and are now more efficient. This, I think, will lead to a much higher level of exports than would be expected
 
JStrike said:
Tassidar : You have to look at the entire basket of goods, before you can say that cost push inflation (or demand pull for that matter) is taking place. And this cannot be measured until we see the effect on goods prices (And higher wages levels) caused by increased exports.

Exports will increase no matter what. It is by what level that is interesting. As I said elsewhere, our exporters had to learn some hard lessons last time and are now more efficient. This, I think, will lead to a much higher level of exports than would be expected
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Fully agreed, but oil is an input goods for almost everything that we buy (due to transport), therefore on oil alone, it would be reasonable to assume that inflation would increase.

Also, I am in full agreement about exports increasing, but this too could have an effect on inflation. Increased exports means that there are fewer local goods on the market, which causes the same amount of money to be chasing fewer goods, hence a rise in prices.

In my own research (3rd year economics), I found that there was a strong link between inflation rates and exchange rates.

However, I do not mean to deride your point on exports. Exports will increase, which will be good for growth. As it stands, I think that the rand is overvalued (as seen from our current account deficit), and this depreciation is a healthy correction.
 
Tassidar : Interesting point. I hadn't taken into account fewer local goods. Did you find evidence on this in your paper?
 
JStrike said:
Tassidar : Interesting point. I hadn't taken into account fewer local goods. Did you find evidence on this in your paper?
Click to expand...

Didn't go into that much detail, just tracked inflation vs exchange rate vs interest rates.
 
Tassidar said:
Increased exports means that there are fewer local goods on the market, which causes the same amount of money to be chasing fewer goods, hence a rise in prices.
Click to expand...
Another way to look at that is simply supply and demand; with a weaker currency the total demand for a good increases (due to higher foreign demand) and hence prices go up. This presumes however that the supply remains constant ... with increased export demand some manufacturers will inevitably grow their supply capabilities (while others might just decide to sit and reap higher profits). (This kind of trend is already very evident in tourism where some restaurants and lodges etc. charge incredibly high prices because they can thanks to all the foreign tourists they see - competition is supposed to mitigate this type of thing but unfortunately we don't have enough of that in SA.) (Anyway, even those who sit and reap higher profits, it's not entirely bad for the economy, because higher total savings means more capital available in financial institutions to e.g. lend to new entrepreneurs.)
 
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