Wimpyflation

Ah… Wimpy, that good ol’ South African junk food institution.  Many a sociable time spent within its kitch but endearing walls and many a ruthless hangover absorbed by its unchangingly stodgy but reliable fare.  Who would have thought it could ever offer us a meaningful economic lesson?  And yet a look back at the prices South Africans paid for their trusted Wimpy burger and chips over the years is quite revealing.

An email popped into my inbox the other day showing Wimpy fast food prices off their menu back in 1972 and 1983.  No, this is not another “back when I was a young lad you could buy [insert array of goods and services here] for just [insert ridiculously small nominal rand value].

A Wimpy burger and Chips cost R0.35 in 1972 and R2.00 in 1983.  It costs R31.95 today.  In case you were wondering, that’s a 9000% price inflation from 1972 to 2010.  Sounds horrific right?  Well, it amounts to only a 12.5% average annual price increase of said tasty boyger.  When Zimbabwe was enduring its hyperinflation not too long ago, people often used to say that prices were doubling every day while some have said the price you paid for a drink at the start of the evening would be different from the price at the end.  Not true (although deciphering all those zero’s must’ve been a challenge even for Zim’s finest boozers).  What many do not realise is that for rampant annual hyperinflation the daily percentage price increases are usually in the very low single digits.  Get into an Excel spreadsheet and raise 5% daily inflation to the power of 365 and see what you get.  Yip, that’s just over 5.4 billion% annual price inflation!

So, where am I going with this?  Well, the point is that inflation is an incremental killer, a silent assassin.  I’ve spoken to South African Treasury officials who reckon 10-20% inflation is needed to boost growth and employment.  Ghastly Keynesians the lot of ’em.  If SA ever settles for that path you can say a final goodbye to the rand, to liberty, to prosperity, and to capital formation. 

It’s so easy to rationalise a 10% price increase.  In fact in SA it’s become so ingrained in our psyche that we plan for it with certainty year in year out.  And yet, stacked up over time it represents a complete debauchery of the currency and confiscation of billions of rands in real wealth by the government and central bank.  In fact, my fellow South Africans, since 1972 your central bank has destroyed the value of your money by 99%.  Every paper currency dies.

9000% food inflation since 1972 is not Wimpy’s fault.  It’s not the fault of greedy Wimpy capitalists or even a shortage of beef or potatoes.  It not the fault of population growth or much more demand for hamburgers (although, believe it or not, some economists actually believe this is the primary cause of annual price inflation).

No, the blame lies squarely with the creators of our currency because it’s the inflation in the money supply over these years that has caused food prices to rise.  Wimpy just did what it had to in order to stay alive, as did you when you demanded a higher salary, not because you were more productive but just…because.  And that’s the point: We all muddle through the inflation, thinking we’re more or less keeping afloat each year, not really being able to diagnose the problem but all getting stolen from by it so subtly that we resign ourselves to just getting on with life as best we can in the hopeless resignation that rising prices is the natural order of things.

Trust the truth to be the polar opposite to the consensus.  The actual natural order of things is for prices of goods to fall in real terms, and I can prove it!

Back in 1972 an ounce of gold was about R35 (give or take).  That means if you plonked an ounce of pure gold on the counter at Wimpy in 1972 and the manager happened to be a gold bug and accepted payment, you would have got yourself 100 burger and chips combos.  In 2010 if you do the same you’ll get just over 260 combos for that same ounce.  Amazing isn’t it?  Not really.  Prices of goods and services should fall in real terms because every year we get more efficient at making them and technology allows us to produce way more in real terms.

So, according to the Wimpy burger standard, for every burger R0.35 could buy in 1972 it can now buy you at best a nibble on a piece of lettuce.  By contrast, for the burger 1/100 oz of bullion bought you in 1972 it can now buy you two burgers and something left over for a milkshake.  Now that’s what I call money.

I know which I consider to be real money. Do you?