The more lasting effect of rising inflation outlooks is likely to be driven by central banks
Considering how slowly the wheels of government generally move, it might well be reasonable for South Africans to react to government proposals to shield them from the impact of higher oil prices with a dose of scepticism.
As tempting as it may be, SA and others may well find that the costs outweigh the benefits in the long term as they seek headline-grabbing “solutions”. Bloomberg reported that other nations such as Japan, South Korea, Brazil and India have also announced measures to mitigate the effect of higher oil prices. In terms of “fiscal space”, SA is just not in the league of the richer of those countries.
Ultimately for consumers and businesses, the more lasting impact is likely to be driven by central banks rather than fiscal tweaking by the government. Even before Russia invaded Ukraine, central banks faced a dilemma of how much inflation they should tolerate in the wake of “supply shocks” as economies opened up after lockdowns.
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