South Africa Labour Strife Creating Vicious Cycle and Crushing Currency

With headlines like yesterday's "Graphene catalyst outperforms platinum in fuel cell" and wannabe asteroid miners realizing that the big money is in either water or platinum, the South Africans can't really afford to stop pulling rocks out of the ground to exchange for U.S. paper.
From Creamers Mining Weekly May 29:

Labour unrest in South Africa's mines, which threatens to spread to bigger sectors like manufacturing, is plunging the economy into a vicious cycle that may spiral into stagflation, disinvestment and more social upheaval.

South Africa's rand has lost 165 against the dollar so far in 2013 and hit new four-year lows this week, with mining worries triggering the latest sell-off - which picked up pace on Tuesday when data showed growth in Africa's top economy slowed to a snail's pace as manufacturing output shrank.

All of this is spooking investors and sowing the seeds of more social discontent, as data shows a strong correlation between the rand's performance against the dollar and inflation, with a time-lag of nine months.

Inflation is currently just under 6% and will accelerate, with the biggest exchange-rate impact likely on food and fuel prices, which will hit working-class households hard.

But the full impact of the rand's current weakness will only be fully felt nine months hence, after the next round of wage agreements in mining and other sectors have been hammered out.
These will be tough as worker militancy is on the rise amid a vicious turf war between a mining union linked to the ruling African National Congress and a more militant rival.

Strikes are a certainty, which will strain incomes and knock the rand further, and any wage gains wrested from companies will mostly be devoured by inflation soon after.

"There is a nine-month lag which generates the highest correlation between the depreciation of the rand and the impact on inflation," said George Glynos, managing director at financial consultancy ETM Analytics.

"Whatever disposable income you negotiate in your wage talks gets eroded away in the months that follow," he said.

This could easily fuel worker anger next year, sparking another round of strikes. Investors in turn would make another stampede for the exits, undermining the rand again and reigniting the whole cycle as inflation was spurred anew....MORE

And from FT Alphaville:

ZAargh!

The Aussie dollar is looking more like the South Pacific peso at the moment, but Australia is not alone in fending off the commodity currency backlash.

South Africa’s market is under similar pressure, and South African Reserve Bank governor Gill Marcus is not having a good time of it when it comes to guiding the markets out of the turmoil.

From the emerging markets team at Danske Bank on Thursday (our emphasis):

South African Reserve Bank (SARB) governor Gill Marcus spoke out twice this week in reaction to the recent sharp sell-off in South African assets and in an attempt to calm the markets.

Following the first speech – in which she said that risks to inflation are skewed to the upside and that despite the central bank being likely to cut the GDP forecast due to the strikes the bank’s core mandate is price stability – yields went up as the market started pricing in rate hikes quite aggressively....MORE