With the Reserve Bank announcing the increase of the inflation rate for 2016, the Congress of South African Trade Union (Cosatu) has demanded that the government put in place steps to reduce the crippling effect the hike in the repo rate will have on the poor. The swell in inflation rate will cause a rise in the prices of goods tapping into the pockets of consumers.

“We are really concerned about the increase in the repo rate as it will cause the rise of all interest rates. The rises in prices of goods will affect the poor most drastically,” said Cosatu provincial secretary Tony Ehrenreich.

The increase will have a staggering effect on consumers as the price of commodity goods will see an influx. Fluctuating prices of basic essential goods are predicted to have a devastating effect on wage earners as they find themselves spending more than they did in previous years.

“The increase in food and fuel prices will drain the lower earning end of the economy. Inflation will leave consumers with less buying power,” says Ehrenreich.

Cosatu wants the government to put measures in place to ensure that the rise in prices do not cripple consumers’ incomes.

“Government should put policies in place to protect the working class,” says Ehrenreich.

The Reserve Bank announced an increase of the repo rate on Thursday. The rate is said to increase form 4.6% in 2015 to 6.7% in 2016.

Despite the entity’s initial aim to minimize costs with a 4.7% inflation rate it has hiked its rate to further economic development. Inflation rates will expose the economy to many risks including a decrease of the value of the currency and an increase in goods.

“The key risks are a marked depreciation of the rand; worsening drought conditions and their likely impact on food prices; and the possibility of additional electricity tariff adjustments,” says Reserve Bank spokesperson Candice Jeffery.

Although the main sectors of the economy are thriving it remains fragile.

“At the same time the economy remains weak despite an improved performance in the manufacturing sector, but both the mining and agricultural sectors appear to have contracted,” says Jeffery.

This is due to the U.S. Fed’s decision to raise its policy rate in December resulting from a sanction of export of poultry and culinary items stipulated in the African Growth and Opportunity Act’s (AGOA) ultimatum.

“The US Fed is likely to raise its policy rate in December, and further volatility in financial markets can be expected in the lead-up to this,” says Jeffery.

As a member, South Africa has failed to a bid to the criteria of the membership of the AGOA. As it has not eliminated its trade and investment barriers it will face an export sanction. U.S. President Barack Obama has given South Africa 60 days to remove barriers to U.S. products or face sanctions in a battle over exports. VOC