The South African Federation of Trade Unions has published an argument about fuel, and the argument is better constructed than most of what gets written about monetary policy by people who are paid to write about monetary policy. Petrol at around R30 a litre is the trigger. The claim is that the central bank’s instrument has been aimed at the wrong target, and that interest rate increases cannot produce oil, cannot repair the rail operator, cannot reduce electricity tariffs and cannot resolve water shortages.
As the union’s case, this needs reporting accurately, and as an economic proposition it deserves to be taken on its merits rather than dismissed for the quarter it came from.
The merits are substantial. Interest rate policy addresses demand. It makes credit dearer, slows investment and consumption, and pushes prices down by reducing the quantity of money chasing available goods. Where inflation originates in excess demand, this works. Where inflation originates in the cost of imported fuel, a degraded freight rail network that forces cargo onto diesel trucks, administered electricity tariffs set by a regulator, and water infrastructure that leaks, the transmission mechanism simply does not reach the cause. Raising the repo rate does not add a kilometre of functioning track. The union is describing a real limitation of the tool, not inventing one.
Here is where the espresso framing earns its place. A barista facing a sour, under-extracted shot has a short list of possible faults, and the skill is in diagnosing which one. If the grind is too coarse, you adjust the grinder. But if the problem is that the machine’s boiler is running cold, grinding finer will not fix it, and grinding finer and finer in increasingly committed increments will eventually produce something undrinkable for an entirely new reason. You will have introduced a second defect while the first one sat there, unaddressed, at the root of the cup. Correct diagnosis is the entire craft. Vigorous action on the wrong variable is not neutral; it costs something.
What the rate hike does achieve, and this is the part the full picture requires, is anchoring expectations and defending the currency. A central bank facing an oil shock in an emerging market has a genuine second-round problem: if households and firms begin to expect permanently higher inflation, the shock embeds itself in wage settlements and pricing decisions and outlasts the oil price that caused it. A weakening currency also makes every imported litre more expensive in local terms, so defending the exchange rate is defending the fuel price. Those are not imaginary benefits and the Reserve Bank’s mandate does not permit it to ignore them.
But the union’s sharper point survives that qualification intact. The costs of the instrument fall on specific people. Higher rates hit indebted households, small firms on overdrafts and anyone with a vehicle financed on a variable rate, which in South Africa is a very large number of working people. The benefits are diffuse and operate through expectations. A policy that imposes concentrated, immediate pain to purchase dispersed, probabilistic stability is a policy whose distribution deserves argument, and organised labour is the institution whose job it is to make that argument.
The honest conclusion is that nobody in the monetary policy committee would dispute the technical claim. Rail, electricity, water and refining capacity are fiscal and industrial questions, and they sit with the Treasury, the utilities and the departments that run them. The uncomfortable thing about the union’s statement is that it points at the gap between the institution that is being blamed for the cost of living and the institutions that could actually alter it.
Fuel at R30 is a supply-side number. It was produced by global crude, by a logistics system that moves freight on roads because the trains do not run, and by a tax structure decided elsewhere. The repo rate was never going to reach any of that, and saying so plainly is the useful contribution here.
Source: SAFTU, “Statement on the fuel price and interest rates”
