South Africa: Inflation Threatens

Average wage settlement has far outpaced weak, below-trend economic growth, impairing productivity. South Africa’s unit labor costs had one of the largest increases in the world, a risk the IMF and OECD highlighted in recent reports. In the 2010 Article IV report, the IMF estimated a 16% increase in unit labor costs from 2007-09, driven by a near 11% increase in public sector wages. The increase in wages without a concurrent increase in labor productivity poses major upside risks to inflation, a concern of the South African Reserve Bank. Though wage increases fell slightly to 8.2% in 2010 from 9.3% the previous year, they far outpaced inflation, which eased to a 3.5% y/y pace by Q3 2010. As such, rising wages could counteract the other deflationary and disinflationary forces in the economy.

RGE’s Wednesday Note: The Economics of the World Cup

We hope all our readers are enjoying the World Cup! Given the international diversity of our analysts and strategists, the event has certainly been the preeminent topic of water-cooler conversation this week in our New York and London offices. While we are recognizing the limits of our abilities and refraining from forecasting a winner, we noted in a recent Critical Issue, “Can Economists Predict the World Cup Winner?” that many other research firms are, in fact, making such calls.