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In the current debate over interest rate prospects, one often hears two key arguments in support of the SA Reserve Bank not cutting its policy rate. The first is that the latest round of sharp administered price increases will spill over into consumer price inflation more broadly. The second is that fiscal policy is already adequately stimulatory (because of sizeable budget deficits) and will remain so. Both perspectives call for unpacking. Let us consider the first argument. For costlier electricity, fuel and so on to have widespread secondary inflationary consequences would require an increase in consumers’ purchasing power and a related rise in domestic demand. These requirements would only be met if consumers could recover the income losses suffered from loftier administered prices through higher wages, and companies could recoup related losses in profit via price pass-through. In the case of consumers, this looks improbable as growth in labour compensation continues to slow. A...

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