wise words for sa economy
25 June 2008

"Low inflation is what creates long-term sustainable economic growth and unless one moves ahead of the curve and prevents the inflation genie from emerging from the bottle, you have a very difficult unstable situation, and the evidence suggests it is far better to attack inflation in the early stages like now than to wait for it to emerge, as we in the US learnt to our chagrin the 1970s," he said.

Greenspan was talking via a satellite feed at a Radio 702 investment event in Sandton, Johannesburg. He said that it did not matter whether people considered higher inflation the result of endogenous issues or not, the price increases were real and unless the central bank "leans against them" and prevented them from taking on a fuller impact, "you will get a highly unstable inflationary environment".

On inflation targeting, Greenspan hedged his bets, saying he had argued against it in the US, but if it helped bring down prices, it was good. He noted that his concern was the ambiguity that arose when it was at the upper edge of the target, does it indicate that it has peaked, or is it a prelude to going through the target.

Greenspan added that it was far easier to implement the policy in a dis-inflationary environment than now, when there was the question of stagflation. On South Africa's outlook, he noted that "there are concerns" because of, for example, instabilities causing the power problem and elections next year.

"There are fundamental problems that have to be resolved before you get large (foreign investment) flows," he said, saying, though, that this was not just isolated in SA, but that many other countries faced similar concerns.

Evan Pickworth, I-Net Bridge,  http://business.iafrica.com