By Lehlohonolo Lehana.
South Africa’s headline consumer inflation slowed to 7.2% year on year in December from 7.4% in November, in line with analysts’ forecasts, Statistics SA data showed on Wednesday.
Price pressures have been gradually easing in Africa’s most industrialised economy, after inflation struck a 13-year high of 7.8% year on year in July.
The South African Reserve Bank has raised interest rates to fight inflation at its last seven monetary policy meetings since its latest tightening cycle began in November 2021.
The central bank, whose next rate-setting decision is due on January 26, targets inflation of between 3% and 6%.
On a month-on-month basis, consumer inflation was at 0.4% in December compared to 0.3% in November. Analysts polled by Reuters had expected it to stay at 0.3%.
Core inflation, which excludes prices of food, non-alcoholic beverages, fuel and energy, was at 4.9% year on year in December, from 5.0% the previous month.
On a month-on-month basis core inflation was at 0.2% in December, compared to 0.1% in November.
The price of some staple food groups meanwhile is expected to rise as load shedding takes its toll on the agricultural sector.
Load shedding is also adding to already damaging global impacts, including the war in Ukraine that drove up diesel prices – pushing up operation and transportation costs for the farming industry – and increased the price of fertiliser.
South Africans will already have to contend with an upset that could drive inflation higher than projected through the 18.65% electricity tariff increase granted to Eskom by energy regulator Nersa this month.
The price hike will come into effect from 1 April 2023, affecting Eskom direct customers from that date. This includes municipalities.
Electricity users who get their power from municipalities, however, will likely suffer an even bigger increase as local governments and utilities add their own markup and rates to the figure and implement their price hikes from 1 July 2023.
According to Investec chief economist Annabel Bishop, the price hikes will only impact inflation numbers later in the year. By this time, a continued easing of global fuel and food prices should be reflected in local inflation – but the ultimate impact is that inflation will be kept higher for longer as a result.
This puts the SARB in the position of having to manage high inflation for longer, which increases the risk of more interest rate hikes or holding rates at the current levels for longer.
Analysts are already pencilling in room for another 75bp hike in 2023, with a 25bp-50bp hike likely in the SARB’s January meeting.
This also does not take into account the effects of persistent load shedding and the knock-on impact it has on production, supply chains, food prices and other critical aspects tied to the cost of living in South Africa.