High Inflation Rate Caused By High Unemployment Rate in SA
The South African economy remains one of the hardest hit economies in Africa. While currently struggling with the third wave of Covid-19, South Africa finds itself facing high levels of unemployment coupled with high levels of inflation though it is still within the targeted framework of between 3–6%. Unemployment rate jumped up by 0.1% to 32.6% in the first quarter of the year which in real numbers is 7.2 million people, while inflation was at 4.4% in April 2021 from 3.2 in March.
Statistics South Africa reported a Consumer Price Index of 4.4% and a Producer Price Index of 6.7% in April 2021 which economists have attributed it to weak demand that is caused by high levels of unemployment. After Covid-19 hit and the strict lockdowns were in place, it was anticipated that the economy would take a huge blow and that it would take 5 to 10 years before we could see an economic recovery. The economy contracted by 7% in 2020, economist saw it as mercy because they expected a 10% or more decline. Businesses began to shut down and millions of people lost their jobs and their income resulting in a decreased and weak aggregate demand, hence the high inflation rate because businesses saw fit to raise prices to gain profits.
The economy is expected to growth this year as economic activities are resuming, but the truth is, the growth will be like a drop in an ocean as the damage has already been done by Covid-19. Unemployment rate hit its all new-time high at 32.6% and according to the expanded definition of unemployment 43.2% people are unemployed. According to it, 11.4 million people which include those who are discouraged work-seekers are unemployed in South Africa. These are not pretty numbers.
South Africans needs to prepare themselves for a harder phase than this as things are forecasted to bad for the next five years. Despite economic activities resuming, unemployment rate and inflation rate are still increasing. Workers are loosing jobs more than they are able to find one. To create jobs, the government needs to implement structural policies that are pro-growth and employment and focus on the labour intensive sectors such as agriculture, Tourism, Hospitality, and the finance sector. These sectors have a lot of potential to produce jobs. Government needs to see itself as an investor and invest in human capital that will bring sustainable economic growth. Human capital is capable to bring about sustainable economic growth.
