Discuss in detail the consequences of inflation - NSC Economics - Question 6 - 2024 - Paper 2

Continued stages of load-shedding can lead to inflation through several mechanisms:

Production Shortages

• Reduced Output: Load-shedding results in decreased production across various industries, increasing the scarcity of goods. As supply diminishes while demand remains constant, prices will inevitably rise.

Increased Operational Costs

• Backup Energy Sources: Businesses may need to invest in alternative energy sources (like generators) to mitigate load-shedding impacts. These additional costs are often passed on to consumers, further driving up prices.

Impact on Investment

• Investor Hesitance: Prolonged load-shedding can deter both local and foreign investments due to perceived instability. This lack of investment can hamper economic growth and contribute to inflation as existing businesses cope with rising operational costs without new capital influx.

Lowered Business Confidence

• Economic Uncertainty: Load-shedding can create an uncertain economic climate, causing businesses to inflate prices in anticipation of rising costs, which can further perpetuate inflationary trends.