Pages

Thursday, 22 May 2008

Congratulations Mr Mboweni

I wish to congratulate Mr Mboweni for admitting that 10.6% inflation is not consistent with price stability. Price stability is a year-on-year increase in the CPI of 0%. A high degree of price stability is a year-on-year increase in the CPI of 2%.

10.6% South African inflation destroys R185 billion per annum in the real value of M3 valued at R1.751 trillion. 6% inflation will destroy R105 billion in M3 while 3% inflation will destroy R52.5 billion in M3 real value per annum. I support an upper limit of 2% inflation in SA that will destroy R35 billion in M3 real value per annum.

When SA Chartered Accountants stop assuming that the Rand is perfectly stable only when they account constant items (e.g. retained income) they will guarantee 0% inflation in the real economy for an indefinite period of time.

The benefits of 0% inflation in the real economy can scarcely be overstimated, especially as these are, in principle, unlimited in duration and accrue year after year.

Instead CAs are currently destroying billions of Rand each and every year in retained income real value in all SA companies.