[TOP STORY] Understanding the concept and effects of stagflation

[LISTEN] If we are to be concerned about stagflation’s risk...you want a heavier than usual holding in cash to protect against erosion of your buying power due to inflation: Futuregrowth's RhandzoMukansi on MoneywebNOW investing finance podcast

JIMMY MOYAHA: I’m chatting now with Rhandzo Mukansi from Futuregrowth [Asset Management], looking at the concept of stagflation. Now this is a very technical thing. There are a lot of technical definitions around it. We know that the broad definitions include things around high inflation coupled with low economic growth – and that’s occasionally sprinkled with high unemployment, which sounds very much like South Africa on a normal day.

JIMMY MOYAHA: This pretty much sounds like an everyday situation in South Africa. If we look at countries like the UK that are battling with what they now consider potentially heading towards stagflation, their inflation is at 10%, their unemployment is at 3.8%, and they’re all freaking out. So you’ve had these very two big global macroeconomic shocks and domestically how it’s manifested significantly is really in our inflation, where we’ve seen inflation de-anchor from that 4.5%-odd we’ve had in the past couple of years to just short of 8% with the July print now. So really the impact on the man on the street is the inflation hits due to their pockets pretty much, where inflation has gone, as I’ve said, from, what, 4.5% to just short of the 8% that we’ve seen now.

JIMMY MOYAHA: Yes. Now you mentioned government finances and that’s the interesting thing. ‘Government finances’ ties into social grants. It ties into infrastructure expenditure by the government. It ties into the ability to finance Eskom in bailouts and that sort of thing.

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