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Statistics South Africa has indicated that the CPI (Consumer Price Index) – the all-inclusive measure of inflation – has increased by 10,6% in July. The increase is the result, among other factors, of a 5,2% increase in housing costs as compared with June this year. The increase in interest rates of commercial banks from 15% to 16% in June was offered as reason for the steep increase in housing costs.

Housing, food and transport make up more than half of the CPI basket of goods. Steep increases in these components explain the rise in inflation. Refer to the following table:

THIS IS WHY CONSUMERS HAD TO DIP DEEP INTO THEIR POCKETS

Item %-increase since July 2001

HOUSING 16,76%

FOOD 16,83%

MEDICAL COST 12,72%

TRANSPORT 6,72%

(Source: Standard Bank)

Food prices this year made a considerable contribution to the inflation monster. Mr Craig Irwing of the Consumer Insight Agency, who investigates consumer affairs on behalf of large enterprises, regards the price increases as a call to prioritise. He said that consumers will have to decide what they will sacrifice – this will probably be unavoidable. The big question will just be what? Will it be an extra school shirt or a bottle of wine? Mr Irwing suggested that it will hopefully in most cases be the luxury item.

Ms Basson of Salon Karin expects that fewer people will visit hair salons. She suggested that clients will prefer to apply colour and take care of their hair at home rather than count cents.

Although most families try to eat out from time to time, they spend less per meal. A manager at Spur asserts that clients now order 200g rather than 500g steaks. Whereas they used to eat out twice a month, they can now afford to do so once a month at most.

Medical services have been hit hardest by inflation increases. Patients increasingly inquire about generic equivalents of costly medicines.

(August 2002 - Die Burger )

  1. What are the main causes of the continuing increases in the prices of the following commodities?

Housing:

Transport:

Food:

Medical costs:

  1. Does the above article refer to DEMAND-PULL INFLATION or COST-PUSH INFLATION? Explain why.

Activity 2

INFLATION

Do research on the following topics and hand in a written report.

  1. Explain the function of STATISTICS SOUTH AFRICA (SSA).

Assessment

Learning Outcomes (LOs)

LO 1

the economic cycle

The learner will be able to demonstrate knowledge and understanding of the economic cycle within the context of ‘the economic problem’.

Assessement Standards(ASs)

This is evident when the learner:

describes the historical development of money and its role in societies and their economies;

discusses how trade (import and export) addresses the economic problem (choice and opportunity cost), as well as the role of banks in investing in the economy;

explains how different economic systems address the economic problem (e.g. planned, market and mixed economies);

discusses the role, rights and responsibilities of trade unions;

discusses the role, rights and responsibilities of trade unions;

Overview

ACTIVITY 1: Inflation

Causes of price increases

Housing: Increases in interest rates (3 times in 2002).

Transport: Increases in fuel prices (several times in 2002).

Food: Increases in food prices resulting from rising costs (continuous during 2002).

Medical costs: Deterioration of the exchange rate of the rand, which raises the prices of imports.

  1. Which kind of inflation?

Cost inflation, because the above refers to input costs that lead to rising prices.

ACTIVITY 2: Inflation

Research regarding:

  1. STATISTICS SOUTH AFRICA (SSA): SSA gathers a large range of statistics with regard to the South African social and economic environment to assist the State in its effort to plan effectively.
  2. The CPI basket: The CPI basket is a representative selection of consumer goods, the prices of which are monitored continuously (on a monthly basis) over a wide front to be able to determine price changes. The data are used by SSA to calculate the CPI and the rate of inflation.
  3. Evaluate the initiative and judgement of the learners with regard to the financial position of the consumer.

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Source:  OpenStax, Economic and management sciences grade 8. OpenStax CNX. Sep 11, 2009 Download for free at http://cnx.org/content/col11040/1.1
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