Answer to Question #156975 in Macroeconomics for KJB SONYONI

Question

QUESTION 3:

Consult the Consumer Price Index – Statistical Release published by Statistics South Africa for November 2020 and then proceed to answer the questions.

3.1 Explain the trends in the CPI from November 2019 to November 2020.  [2]

3.2 Discuss the main contributors to the annual inflation rate.  [6]

3.3 Explain how the headline inflation changed from January 2016 to November 2020 year 

on year.  [6]

3.4 Discuss the CPI trends per province from November 2019 to November 2020.  [4]

3.5 List the two main causes of inflation in the short run.  [2]

3.6 Illustrate and explain the two causes of inflation by referring to its initial effects. [10]

Answer 1

3.1

 South Africa's headline consumer price inflation slowed from 3,7 to 3.0

3.2

After the projected decline this year due to Covid-19, aggregate demand has decreased and economic activity of the population has fallen, so the decline in inflation

3.3

 South Africa's headline consumer price inflation slowed from 4,5 to 3.0

3.4

 South Africa's headline consumer price inflation slowed from 3,7 to 3.0

3.5-3.6

The impact of covid-19 served as an impetus to the decline in aggregate demand, as a result of this, there was a drop in economic activity, which caused the fall in inflation.

Africa's most developed economy slid into recession in the first half of 2018 for the first time in nine years. The main reason was the last year's drought and the fall in the volume of agricultural products. However, the country's economy has not been growing at a normal pace since 2013 — over the past five years, the growth rate has never exceeded 2%. The reason for this is the decline in prices for raw materials that South Africa exports. In addition, growth is being hampered by the poor state of transport and energy infrastructure, which needs massive investment.

These reasons also explain the decline in inflation since 2016, as the above reasons also reduce aggregate demand and economic activity of the population