EXCHANGE RATES AND INFLATION RATES, 1981-2008

The following table shows annual average values for the R (rand)/$ (dollar) exchange rate and for consumer price inflation (metropolitan areas) for the years 1981-2008 according to the South African Department of Trade and Industry (www.thedti.gov.za). In the third column of the table, I have cumulated each individual year's inflation rate into a cumulative, year-by-year CPI factor for each year in the entire 28 year period.

YEAR

EXCHANGE RATE

(SA rands/US dollar)

AVERAGE ANNUAL CPI FOR METROPOLITAN AREAS (percent)

CUMULATIVE CPI FACTOR


1981

0.88

15.3

1

1982

1.09

14.7

1.15

1983

1.12

12.4

1.29

1984

1.48

11.5

1.44

1985

2.24

16.3

1.67

1986

2.29

18.7

1.99

1987

2.04

16.2

2.31

1988

2.28

12.8

2.61

1989

2.62

14.7

2.99

1990

2.59

14.3

3.42

1991

2.76

15.3

3.94

1992

2.85

14

4.49

1993

3.27

9.7

4.93

1994

3.55

8.9

5.36

1995

3.63

8.7

5.83

1996

4.3

7.3

6.26

1997

4.61

8.6

6.79

1998

5.53

6.9

7.26

1999

6.12

5.1

7.63

2000

6.95

5.3

8.04

2001

8.63

5.7

8.49

2002

10.52

9.2

9.27

2003

7.56

6

9.83

2004

6.45

1.4

9.96

2005

6.36

3.4

10.31

2006

6.77

4.6

10.78

2007

7.05

7.1

11.55

2008

8.25

10.2

12.72



Graphic for table



Labor costs represent 50 pct or more of underground mining costs and about a third of surface mining and milling costs. In addition, the miners are all unionized, wages and benefits are negotiated every 2 years, and usually the miners ask for, and get, wage increases somewhat higher (and tied to) the CPI. Thus, to be as accurate and representative as possible, attempts to update costs over time must allow for a “labor cost index” separate from the ordinary CPI. To address this, I've attempted to provide a chronology/summary of gold mining wage inflation on the South African gold mines in the following table:



Year : Event/Wages

1981 : For IC 9070: estimated average wages: R 2,900/yr for blacks, R 14,000/yr for whites

1982 : National Union of Mineworkers (NUM) formed

1987 : First major strike began August 10, lasted 21 days; black wage range indicated to be about R 3,600 -R6,000/yr (at 2/1 rand/dollar exchange rate)

1991 : For SP 24-94: average un- or semi-skilled minimum wage of all mining houses and categories = R 12,000/yr; skilled = R 46,000/yr

2003-2005 : Chamber of Mines/NUM agreement – average of R 34,380/yr (categories 3-8) for 2003/2004; CPIX + 1% (minimum of 7%) for 2004/2005 (result was 7 pct)

2005-2007 : Chamber of Mines/NUM agreement after major 4-day strike: 6-7% increase for 2005/2006. CPIX +1% (minimum of 7%) for 2006/2007 (result was 8.1 pct)


2007-2009 : Chamber of Mines/NUM agreement: 8.5% increase for 2007/2008, CPIX +1% (minimum of 8%) for 2008/2009 (result was 8.9%)

NOTE: Update of the R 34,380/yr average for 2003 by subsequent agreements shown gives an average minimum wage of R 45,950/yr for 2007/2008 and an average minimum wage of R50,040/yr for 2008/2009; increases of 34% and 46% respectively.



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