The adverse effects of increasing or high inflation are well known and understood.
Countries with comparatively high inflation tend to have weaker long-term economic
growth and higher levels of unemployment than countries with comparatively low
inflation. Countries that experienced rapid inflation are clear evidence that inflation
cannot be taken lightly and can have devastating consequences.
There are numerous factors that cause inflation. These are conveniently classified as
either demand pull or cost push factors. These demand pull or cost push factors
represent the inflation basket which is measured every month based on the per annum
change. Included in the inflation basket are goods and services which prices are
directly or indirectly determined by the government or by some government entity and in
the main can be classified as cost push factors.
The prices of these goods and services (administrative goods and services) are thus
directly or indirectly under the control of the government or the relevant government
entity and thus not subject to market forces. The increases of these monopolistic prices
in general and based on theory tend to be higher than the increases of non-monopolistic
prices. Thus it seems plausible to argue that the prices of administrative goods and
services will experience faster or more rapid increases than the prices of goods and
services that are subject to market forces.
It can further be argued that the price increases in these administrative goods and
services will increase the overall cost or price of the inflation basket and vice versa.
The size of the impact of the price increases will largely be dependent on the weights of
these prices relative to the total inflation basket. The higher the weight of these
administrative prices the larger the impact and vice versa.
The aim of this article is to attempt to quantify the impact of administrative prices on
inflation and the economic objectives of South Africa given that the government has set
a target of the creation of 5 000 000 jobs in the next 5 years. The hypothesis is that
administrative prices are a significant constraint to the economic growth rate of South

Africa through its impact on inflation, interest rates and ultimately private consumption
expenditure and savings.