Thursday, 23 June 2022 10:25

South Africans should brace for another Petrol price hike in July.

By Lehlohonolo Lehana.

The ongoing war in Ukraine, intensifying international sanctions, and adverse local weather all point to South Africa seeing higher prices and inflation levels for longer than originally forecast.

Both global and local inflation is high, and price pressures are expected to remain heady over Q2 2022, and into Q3 2022, negatively impacting consumers, said Investec chief economist Annabel Bishop in a research note on Wednesday (22 June).

Investec has pencilled in an interest rate hike of 50bp in July, followed by another 25bp increase in September, and another 25bp in November.

"Despite producing enough food to have high food security, South Africa is a price taker for most of its agricultural food produced, either through import or export parity pricing, which means international food prices are a key driver of local food costs. The Economist commodity price index recorded a 19.4% y/y lift for the prices of global food agricultural commodities, "she said.

Increased protectionism, including outright bans by some countries on certain exports, along with increased sanctions on Russia and the impact of the Chinese lockdown restrictions have driven already high global food prices before the Russian/Ukraine war – from adverse weather conditions and increased demand – even higher this year."

Bishop said expectations for food and energy price collapses should be guarded against, with the Russian invasion of Ukraine intensifying, and so sanctions against Russia, and NATO now warning that the war could last for years, providing no end in sight for related price pressures.

Additionally, adverse weather conditions persist in some regions globally and domestically, and indeed are expected to intensify as climate change strengthens, she said.

Bishop said CPI inflation in June is expected to rise above 7.0% y/y on the R2.33/litre hike in the petrol price, base effects, food price pressures and potentially some second-round effects of rising inflation on rentals/owner equivalent rent and other categories.

High commodity prices are flowing through rapidly to consumers in South Africa via higher transport and food prices, and another petrol price hike is currently building for July of R1.92/litre.

"We expect CPI inflation to average 6.5% y/y for this year, as the Russian/Ukraine war continues for longer than expected and the effects of the war, and deglobalisation, intensify on price pressures, causing inflation expectations to rise globally and domestically.

The persistence of high inflationary conditions globally and locally, and in particular high price pressures at the production level also does not provide the environment for a rapid deceleration in domestic inflationary pressures, she said.