There are growing signs that the South Africa economy could soon experience stagflation. Stagflation is a situation in which an economy suffers from both low growth and high inflation. It is a difficult place to be in, and from which to exit.

The release yesterday of South Africa’s strong first quarter growth figure of 1.9 percent is positive as a sign of a strong rebound. But since the end of the quarter there has been a stream of data pointing to slowing growth and higher inflation.

With rising oil and food prices due to the Russian invasion of Ukraine, and slowing growth projections with central banks raising interest rates across the world, the conditions for stagflation are coming into play. For South Africa, this raises the risks of renewed mass social unrest.

The threat of stagflation comes as the global economy seemed to be emerging from the shock of the Covid-19 lockdowns. Rising dissatisfaction with the ANC, a cost-of-living squeeze and stubbornly high unemployment could easily provide tinder for unrest. In South Africa, this could be the spark for a repeat of the unrest across KwaZulu-Natal last year, or worse. Generally inflation has a disproportionately negative effect on the poor, and with climbing fuel and food prices, the impact could be especially hard.

And stagflation might well magnify the anticipated ANC decline at the polls. In the 2024 elections, many more might vote for an opposition party, or just stay away from the polls, helping to push the ANC to under 50 percent. Depending on its force, the coming period of stagflation could be the ANC’s final undoing in government.

Rising prices and slow growth have helped accelerate change in South Africa before. The 1970s saw global stagflation triggered by the embargo of Arab oil producers against the US for its support of Israel in the 1973 Middle East war. In South Africa in the 1970s, stagflation saw an average annual growth rate of 3.3 percent and an annual average rise in the consumer price index of 9.5 percent.

In South Africa stagflation continued into the 1980s, when the average annual growth rate was only 2.2 percent and consumer prices rose by an annual average of 14.6 percent. At work in the 1970s was a rise in the oil price, but key in the 1980s was the constraint on overseas investment. The tough economy in the 1970s and 1980s was arguably an important factor in the rise in the overall dissatisfaction that led to the end of apartheid.


Global concerns about slowing growth and rising inflation are the direct result of the war in Ukraine, still tight global supply chains and central banks raising interest rates. These are forcing economists to revise their growth forecasts downward and their projections for inflation upwards. So far the revisions are not substantial, but the direction of travel is ominous, as the downward revisions for growth and higher inflation are also for two years ahead.

In its Financial Stability Review released last month, the Reserve Bank said high inflation outcomes and lower growth forecasts present a risk of global stagflation. And this, the Bank said, was a possible risk to financial stability in the country, particularly as debt was high. Serious spill-over effects from global stagflation are expected on emerging markets, particularly those carrying large public debt and high government budget deficits.

The Reserve Bank has revised downward its expected local economic growth rate for this year from 2 percent to 1.7 percent. This is mainly due to a combination of the Kwa-Zulu-Natal floods and continued power cuts. The Bank’s forecast of headline inflation for this year was revised higher to 5.9% (from 5.8%), mainly due to the higher food and fuel prices.

The Reserve Bank expects food prices to stay high, and fuel price inflation to ease, in 2023. As a result of higher global food prices, the Bank has pushed up its food price inflation forecast by half a percentage point to 6.6 percent in 2022.

Globally, higher oil and food prices will increasingly feed through into other prices. There are also continuing constraints on supply chains across the world which are helping drive prices higher. Gasoline prices are being pushed higher by the rise in oil prices, but also by the present constraints at many refineries.

After last week’s fuel price rises, the petrol price is about 40 percent higher than a year ago, and had the general fuel levy reduction not been continued for another month, the increase at the petrol pump would have been closer to 50 percent on a year ago. Last week OPEC said it would increase oil production, but even that failed to curb the rise in oil prices, as the market is so tight.

International price trends

The prices of bread, mealie meal, and flour could go up by 15 to 20 percent this year. Although South Africa produces enough to ensure its own food security, the country is still a price taker, so we are not immune to international price trends.

With serious structural problems including a high deficit and debt, low investment levels, low productivity, high unemployment, and frequent power cuts, the country lacks the resilience to get through a bout of stagflation without paying a high price. Our unemployment rate is four times higher than the global average, investment is only at 13 percent of GDP, and there is no convincing end to power cuts, and the transport infrastructure is eroding. In short, the overall direction of policy does not work toward giving our economy resilience in the face of economic shocks.

Stagflation means further pressure on tax revenue, as the tax take will drop with slower growth, and, on the spending side, demands for greater social relief could be difficult to resist just ahead of a national election. That could put the government into a severe bind. Due to the increasingly severe constraints on government spending, it is becoming very difficult for the ANC to buy social peace with increased transfers. And resorting to price controls would be dangerous and will quickly bring about shortages and the collapse of businesses.

The cost of living increase is bound to see new pressures on the government from the unions, consumers and the street in the hope of some relief. But after the extensive Covid-19-related relief, the government is hardly in a position to offer more. Demands from the unions risk prolonged confrontations and above-inflation pay rises. The proposed basic income grant is simply unaffordable, and extending or replacing the R350 a month Covid Social Relief of Distress grant with a larger transfer is impossible.

A prolonged period of stagflation will put the ANC and the country in the worst of all worlds.


The views of the writer are not necessarily the views of the Daily Friend or the IRR

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Jonathan Katzenellenbogen is a Johannesburg-based freelance financial journalist. His articles have appeared on DefenceWeb, Politicsweb, as well as in a number of overseas publications. Jonathan has also worked on Business Day and as a TV and radio reporter and newsreader.