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Picture: 123RF/XTOCKIMAGES
Picture: 123RF/XTOCKIMAGES

SA stands at a critical crossroad. While the Reserve Bank has maintained inflation within its 3% — 6% target, this focus on price stability has done little to alleviate one of the country’s most pressing crises: unemployment.

Youth unemployment sits at an alarming 59.4%, a reality that calls for urgent change. Perhaps it is time for the Bank’s mandate to be expanded beyond inflation targeting and make employment creation a central goal. 

Inflation targeting, a policy where the central bank aims to control inflation by adjusting interest rates, has been successful in maintaining price stability. This approach brings transparency and predictability, fostering public trust and encouraging long-term investment.

However, SA’s socioeconomic landscape shows that price stability alone does not translate to job creation or economic growth. Despite low inflation rates, unemployment remains stubbornly high. It is testament to the inadequacy of focusing solely on inflation. 

This is not to say inflation targeting should be completely abandoned. The benefits of keeping inflation down are undeniable. Price stability can create a conducive environment for investment by reducing uncertainty. But it comes at a cost.

By prioritising inflation the Bank overlooks other economic imperatives, including employment, poverty and inequality. Developing countries such as SA require more than just macroeconomic stability, they need policies that directly address the structural issues in the labour market. 

The Covid pandemic underscored the Bank’s limitations. In 2020 inflation dropped to a record low of 3.28%, yet unemployment soared to 35.2%. This was not an anomaly but a stark example of how inflation control alone falls short in addressing deep-rooted economic problems.

The supposed trade-off between inflation and unemployment defined by the Phillips curve (the idea that there is an inescapable relationship between inflation and unemployment), has proven inconsistent in SA. From 2010-23, despite stable or falling inflation, unemployment stayed at an abnormally high level. This further reinforces the need for a dual mandate. 

A shift to include employment targeting would make economic sense. Employment targeting offers a more direct focus on job creation. In return, rising employment increases aggregate demand, household incomes and consumption, all of which contribute to greater economic stability.

Employment targeting can also help stimulate labour-intensive industries, reducing poverty and fostering more inclusive growth. This ultimately benefits a wider section of the population.

The normal criticism would be that dual mandates are inherently more complex, and that diverting attention from inflation control could risk macroeconomic instability, potentially leading to higher inflation expectations and eroding the gains made in past decades. 

It is true that employment targeting has its challenges. Achieving a balance between promoting job growth and controlling inflation requires a nuanced approach. Rapid job creation could stoke inflationary pressures, especially if productivity doesn’t keep pace. However, such risks can be managed with the right tools and careful policy adjustments. 

Experiences from nations such as the US, Australia and South Korea show that dual mandates are achievable and can lead to inclusive growth. SA should definitely take note. 

Implementing a dual mandate would involve several practical steps. The Bank would need to redefine its role to prioritise employment as part of its strategy, collaborating closely with government bodies responsible for labour policies and public investment.

It would also require expanding its data indicators to include employment metrics alongside inflation. Policies such as lower interest rates for labour-intensive sectors and incentives for small and medium-sized enterprises could provide a much-needed boost to job creation. 

While inflation targeting has achieved price stabilisation in SA, it has failed to address the country’s deep structural unemployment issues. Expanding the Reserve Bank’s mandate to include employment creation is essential for tackling the persistent job crisis, particularly among the youth.

A dual mandate could stimulate job growth, boost incomes and reduce inequality, building a more inclusive and resilient economy. It is time for the Bank to reconsider its priorities. People, not just prices, should come first. 

• Makhonza is final year BBusSc computer science student at the University of Cape Town.

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