What do Rishi Sunak and Imran Khan have in common? The answer is not cricket, though I still struggle to see the latter as a politician. I’ve never been in the same room with the former, so I can’t say it’s charisma either. Khan has loads of that, which I got to witness in Davos once.
The UK finance minister and the prime minister of Pakistan have a problem that faces politicians across the world: rates of price increases are way above inflation targets in many countries.
It was like that even before the outbreak of the conflict in Ukraine, but Russia’s aggression has led to record oil prices, which mean consumers in SA are paying above R20/l for petrol and are also facing upside pressure on food prices.
SA’s government isn’t the only one grappling with how to cushion the pain for consumers, which could come with a heavy political cost. Finance minister Enoch Godongwana may come up with headline-grabbing interventions in the next month, but I doubt he will do much more than that. It will give the government the chance to glow in positive headlines, with no lasting difference to living standards. However, politicians have different priorities and considerations.
In the UK, Sunak has been regarded as the most likely candidate to replace Boris Johnson as prime minister should he eventually be felled by the many scandals relating to his flouting of Covid-19 rules. He’s got a reprieve at the moment, with the world focusing on Russian President Vladimir Putin’s disastrous warmongering in Ukraine.
Last week Sunak delivered the UK government’s annual spring statement, the British version of a “mini budget” that gives an update on the health of the economy and provides economic forecasts.
Judging by the reaction to the statement it is fair to say that his star has waned somewhat, and the reason can be summed up in one word: inflation. The UK rate was at 6.2% in February, the fastest pace of price increases in 30 years thanks to surging prices for fuel, energy and food.
Sunak has been attracting bad headlines because he is seen to have not done enough to shield the most vulnerable workers from the “cost of living crisis” caused by wages not keeping up with price increases. The Guardian newspaper reported that measures such as cutting fuel tax duty, seen as benefiting middle class drivers with their gas-guzzling cars, would not be enough to prevent living standards falling the most since the 1950s.
On the other end of the economic power scale, the Financial Times reported on Khan’s political troubles, with his celebrity and populism not proving enough to fight the same enemy that confronts Sunak in one of the richest countries in the world. The FT cites the example of a nurse who had to choose between buying food or sending her brother on a computer course.
It also spoke of a poll that showed almost two-thirds of the Pakistani population think rising prices — a basket of goods containing food and fuel rose 15% year on year — are the biggest problem facing the country. The future of Khan’s premiership is in doubt as a result.
This is a turnaround from what was being suggested by the many critics of our “conservative” Reserve Bank just two years ago. In truth, this has been a long-standing debate, with critics on the Left refusing to see inflation as an enemy and blaming the Bank for hobbling the country’s economic prospects.
In this telling, the economic stagnation of the Jacob Zuma era had nothing to do with grand corruption, failing and corrupt state-owned enterprises, business unfriendly policies or Eskom power cuts. It was all the fault of one man, Lesetja Kganyago, who unwound the rate cuts implemented by Gill Marcus, his predecessor as Reserve Bank governor.
The debate has gone on for years. In 2018, before we imagined there would be a thing called Covid-19, Kganyago put out a tweet in which he defended the Bank’s policies, which he said aim to “protect the rand in your pocket”. He went on to describe inflation as “a thief that raids your pocket”.
Ahead of the Reserve Bank monetary policy committee’s interest rate decision on Thursday, I revisited a speech Kganyago gave to the Wits School of Governance in June 2020, where he addressed the demand for even more aggressive monetary stimulus than the Bank had provided. The title referred to “the age of magic money”, and he spent a lot of time explaining why money printing, or quantitative easing, wasn’t appropriate for SA.
There is no doubt that with consumers facing record high prices, inflation close to the upper end of the inflation target and more than 2-million jobs having been lost since the Covid-19 outbreak, SA has its own cost of living crisis. But imagine how much worse it would have been with a less independent central bank, or one that chose to disregard its mandate “to protect the value of the currency in the interest of balanced and sustainable economic growth”. It does this by acting to keep inflation within the 3%-6% target, something it is succeeding in doing despite the price shocks.
This does not mean the debate has been won. People who think it’s the Reserve Bank’s job to print money to finance government borrowing, fund a basic income grant or rescue Eskom aren’t going to be swayed by this real-life evidence of how rampant inflation hurts the poor. They’ll still believe there’s a trade-off between containing inflation and boosting economic growth.
Fortunately, Kganyago doesn’t mind repeating himself, so expect more of the “there’s no virtue in inflation” and other statements made last week as he’s again pushed to defend the Bank’s “conservatism”. Perhaps the pressure on Sunak, Khan and other politicians will convince the doubters in the ANC that an independent and “conservative” central bank is in their political interests.
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