The South African Federation of Trade Unions (SAFTU) has criticised moves by the Treasury and the South African Reserve Bank (SARB) to reduce South Africa’s inflation target to 3%, saying: “The Reserve Bank continues to insist that lowering the target is ‘pro-poor.’”

SAFTU argues the policy would suppress economic activity as it would see the central bank hold interest rates higher than might otherwise be the case. According to SAFTU: “SARB’s own monetary-policy framework makes it clear that monetary tightening works by cooling demand, slowing spending, raising borrowing costs, and deliberately restraining economic activity. That is the mechanism. It is designed to slow the economy. And yet the very tool meant to suppress economic activity is now being sold to us as a gift to the poor.”

Sensible economists, however, counter that economic activity is kept down in South Africa by electricity shortages, the costs of empowerment policy compliance, threats to property rights, and general government ineptitude and corruption. They show that cutting interest rates in such an environment would see inflationary pressures spike, with the consequence of devastating living standards and bringing about populist protest actions and violence. Populist left-wing activists often wish to provoke such poverty and violence in the hope of bringing about a revolution against capitalism.

SAFTU went on to argue that: “Instead of confronting monopoly food pricing, tackling corporate hoarding of over R2 trillion in unused surpluses, repairing collapsing infrastructure, or reversing deindustrialisation, the government is doubling down on the same anti-worker policies that have already failed.”

The unused surpluses referred to by SAFTU relates to funds invested by businesses in the economy, including via the pension funds of workers, where that money is put to work, capitalising the country’s commercial enterprises.

It further said that: “Lowering the inflation target to 3 percent is not a neutral technical adjustment. It is a political attack. It will deepen unemployment, suffocate household demand, undermine wages, cripple small business borrowing, and justify yet another round of budget cuts. It will intensify the suffering of the working class while protecting the wealth of the elite.”