21 December 2007
	Inflation conspiracy Maurice Blumsohn, Illovo

Nazmeera Moola is correct in her assertion that the price increases on food and petrol cannot be controlled with interest rates (Economic Viewpoint December 14). She also says "inflation is being driven by factors outside the [Reserve] Bank's control". The fact is that it is price increases that are driven by factors outside the Bank's control. Inflation and selective price increases are not the same thing. And price increases do not fuel inflation. Price increases are caused by the natural law of supply and demand. Neither Moola nor the economists quoted in another article on inflation (Features December 7) state the real cause of inflation. Inflation is an increase in prices overall, not just in some sectors, and is caused by more money flowing into the system. And who controls that but the Reserve Bank? If the Bank stopped increasing the flow of money into the system, prices of petrol (and related products) would still increase (outside the control of the Bank), due to the natural law of supply and demand, but consumers would have less to spend on other things. Manufacturers of "other things" would be forced to lower their prices in order to remain in business and the lower prices in some sectors would offset the higher prices in other sectors. But if government increases the amount of money around, consumers will find themselves with this extra money and prices in all sectors will increase. This is inflation. Interest rate hikes are causing great harm to the economy and will not slow inflation down. The only thing that will is for government to stop injecting money into the economy. Interest rates will find their own levels based on circumstances in the market. I can't figure out why economists who, I believe, know full well the true cause of inflation, do not say it out loud. I can only conclude that they work for huge companies which don't want to be seen to be at odds with government. It's the old story of big government and big business getting together to screw the citizen.