Correct me if I’m wrong but classic economic theory dictates that during a recession, inflation and prices should go down in an attempt to promote buying? If this is true then what is going on in our country?
Video games cost a thousand rand each; a cup of coffee costs over twenty-five rand and the cost of cars, locally produced or imported, have increased exponentially. However, despite all this doom and gloom the price of petrol has dropped substantially and we had a drop in inflation this week. Quite clearly the government is on the side of the consumer and trying to increase spending while at the same time lowering debt. What strikes me though is that there are companies out there that seem hell bent on ripping off the consumer.
I’m not going to mention any specific names as it’s quite a general problem at the moment but I do want to highlight the issue. The easiest way to explain things is the old equation of: Price * Quantity = Profit. If price goes up, the quantity desired goes down and vice versa. What South African companies are doing is ruining any chance of having a decent Christmas season by upping their prices. Now I understand that the exchange rate has gone to hell but we’ve already experienced a relatively instant price increase when the Rand/Dollar rate was 10:1. A certain coffee shop I frequent has raised its prices a massive twenty percent despite already having an increase this year already. What we have here is rampant profiteering with no remorse.
Considering salaries have not gone up (nor do they look like they will due to the aforementioned recession) increasing prices has a doubly negative effect for consumers. The moral of the story: this is going to be a bleak Christmas for retailers and it’s their own fault.
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The classic South African business culture is ‘who cares about the little guy’ this can been seen in the context of our history, but is by no means limited to SA. The retailers see the consumer as a sap who will just keep getting credit to consume so why should they not just pump their prices and pimp their rides. As the credit crunch kicks in and the National Credit Act slows credit consumption, they will also feel the pinch and might even come to appreciate who pays their bonuses…but I don’t have high hopes!