Page 34 - Waterfall_Issue 4_2022

Waterfall News

THE MANY FACES

OF INFLATION

By Anet Ahern, CEO at PSG Asset Management

Inflation has been making a comeback inflation – because its impact on your
purchasing power and wealth is not
always self-evident (i.e. it erodes your
N ot so long ago, it had seemed the inflation charge. Over the past financial resources unnoticed over

that we had vanquished (at
decade, developed economies have
time). R1 is always R1, after all, but it
least in the developed world)
kept their inflation rates in check and
is what you can buy with that money
this sneaky foe of long-term
around continued low inflation rates.
wealth creators everywhere, thanks to expectations remained anchored that really matters when it comes to
consumer well-being and maintaining
tightly controlled central bank policies Locally, however, we still seem to anchor your living standards. Underestimating
and the wonders of inflation targeting. our inflation outlook and expectations the impact of inflation on your
Despite a post-financial crisis experiment higher, even though the South African standard of living can be especially
called quantitative easing and prolonged Reserve Bank (SARB) has demonstrated detrimental in the long run as the
record low (even below-inflation) credibility in managing the country’s effects of inflation compound.
interest rates, inflation had remained inflation rate over the past decade.
controlled. Perhaps the inflation Our weak local macroeconomic What is particularly interesting when it
monster had been beaten after all. environment also ironically means comes to the latest round of inflation,
many of the pressures driving inflation is that the official figures may be
However, at the end of 2019, something higher in developed markets are underestimating its true impact. While
changed. A virus emerged that likely to remain contained here. the phenomenon of shrinkflation
shattered economies around the (exemplified by your chocolate or cola
world, and governments unleashed US inflation continued its upward path, reducing in size but costing the same)
unprecedented levels of fiscal and coming in at 7.0% for December 2021, has been a source of consumer chagrin
monetary stimulus to combat its effects while local inflation edged out at 5.9%. for some time, we have also seen the
on their economies. Suddenly, the Of course, it is far too early to say that post-pandemic rise of skimpflation. Just
inflation monster was back (although US inflation will be sustained at such a like other forms of inflation, skimpflation
one could say it had been simmering in level, but what it does illustrate is that reduces consumer well-being through
the background for quite some time). when things are changing, anchoring stealth. But while shrinkflation impacts
on the past might be dangerous. by reducing the size of the goods you
What seems to be different this time get, skimpflation has seen consumers
around, however, is who is leading Stealth remains the biggest threat of being offered reduced or inferior

32 Waterfall Issue 4 2022