Johannesburg – Recently published statistics on South Africa’s consumer price index (CPI) reveal that input costs are stabilising for businesses, while creating an encouraging environment for start-ups.
Economists are upbeat that the latest stats predict better times ahead.
Dieter von Fintel, a senior economics lecturer at the University of Stellenbosch, believes this environment presents new hope for the South African economy.
In the last year, South Africa’s annual CPI average for all urban areas dropped from 6.6% in January 2017 to 4.4% in January this year, according to Statistics South Africa’s latest data released on Wednesday morning.
“That means input costs are not growing by as much as in the previous year, and consumers are seeing lower increases in prices of the goods they buy. This includes the prices of goods that firms buy to produce their own goods,” said Von Fintel.
“Importantly, the lower figure from one year ago moves the inflation rate back into the target band, emphasising that the South African Reserve Bank (SARB) is achieving credibility in its mandate.”
He explained that the ideal CPI is one that indicates price stability and this, according to SARB’s mandate, is the maintenance of an inflation rate of 3% to 6%, which describes last year’s CPI.
“This favourable inflation rate assists businesses in making cost predictions more reliable – a situation which the South African Reserve Bank does predict for the next year,” he said.
Reliable predictions allow businesses to rely on their cost planning for the year ahead.
“Especially emerging and small businesses must operate in a predictable environment to find their feet without the shock of unforeseen costs,” Von Fintel said.
André Rossouw, a sales manager at Company Partners, a business that specialises in fast-tracking company registration, has also seen a significant increase in newly registered companies over the last year.
“It’s vital, now more than ever, that South Africa’s economy provides a stable environment for these South African entrepreneurs to grow and stabilise in,” he said.
“We’ve also seen a large increase in entrepreneurs who want to grow their businesses this year by venturing into tenders, RFQ’s (request for quotes) and contracts. We truly hope the stabilising prices allow these entrepreneurs the chance to reach their full potential.”
The prediction of stable prices throughout 2018 will also make loans and capital more accessible to start-ups, Von Fintel added.
“CPI inflation that is in control means a number of things: interest rates are unlikely to rise, which also keeps the costs of loans and start-up capital under control.”
However, there are a few things which pose a risk to start-ups in the coming year, he warned.
“The national minimum wage is likely to be introduced in the coming year; this will raise the payroll costs of firms that employ many low paid workers. Research shows that this will likely affect small firms most severely,” he explained.
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