Thought-provoking article on inflation and interest rates

On 5 June 2008 I came across a thought-provoking article in the Mail and Guardian online newspaper. It was written by Reg Rumney,  head of the Centre for Economics Journalism in Africa.

Rumney is responding to to a column written the previous day by well-established journalist Max du Preez titled “Someone stop Tito, please”. This heading refers to Tito Mboweni, the Governor of the Reserve Bank, who has increased the interest rates a couple of times already this year.

Rumney very eloquently takes issue with Du Preez on several issues raised in that article, and sets out to debunk the following “10 myths about inflation and interest rates”:

  • Myth No 1: Higher interest rates cause higher inflation, including higher food and fuel prices.
  • Myth No 2: Interest rates are “high”.
  • Myth No 3: Higher interest rates favour the banks.
  • Myth No 4: The Reserve Bank governor is raising interest rates on a whim.
  • Myth No 5: The poor suffer from higher interest rates.
  • Myth No 6: Inflation-targeting hasn’t worked and should be abandoned.
  • Myth No 7: Government can cut interest rates and control credit.
  • Myth No 8: Higher interest rates don’t dampen inflation.
  • Myth No 9: Higher interest rates have brought disaster on the middle classes.
  • Myth No 10: Falling property prices are an outright disaster and must be stopped at all cost.

Judging from the flood of online comments, both writers have tapped into a simmering volcano of uncertainty, resentment, confusion and fear…

But one smart reader was inspired to write a funny yet incisive blog post on 16 June 2008, titled “Economics is child’s play”.

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