South Africa

Inflation climbs to 13-year high before interest rate decision

Bruce Whitfield chats with Patrick Kelly of Stats SA and economist Razia Khan (Standard Chartered Bank) about the latest CPI figures.

before the interest rate decision

Annual consumer price inflation in South Africa rose to 7.4% in June.

By May, it had hit what was already a five-year high of 6.5%.

RELATED: Inflation jumps to 5-year high, breaches Reserve Bank’s target range

The consumer price index (CPI) for June is the highest in 13 years, according to Statistics SA.

It comes ahead of the Reserve Bank’s interest rate decision looming on Thursday.

RELATED: Consumer price inflation hits 13-year high in June

The main contributors to the annual inflation rate of 7.4% were food and non-alcoholic beverages.

This is followed by housing and utilities, followed by transportation, then miscellaneous goods and services.

The cost of food and non-alcoholic beverages rose 8.6% year-on-year, according to Stats SA.

Fuel prices rose 45.3% in June, marking the largest annual increase in fuel since the start of the current CPI series in 2009.

RELATED: Inflation and the end of the fuel tax lead to high costs for consumers

Bruce Whitfield interviews Razia Khan, Chief Economist and Head of Research for the Middle East and Africa at Standard Chartered Bank.

He also speaks with Patrick Kelly, chief price statistics director at Stats SA, who puts the current 13-year high into perspective.

If we think back to that time [May 2009]we were just emerging from a global financial crisis and the rand was slipping quite dramatically – for many people this is a distant memory.

Patrick Kelly, Chief Price Statistics Manager – Stats SA

Food and non-alcoholic beverages, on the one hand, and fuel prices, on the other hand, are really the main drivers of inflation. Both of these items have high weights in the overall CPI basket, so when the prices of these commodities are accelerating faster than others, we see these types of high levels of overall inflation.

Patrick Kelly, Chief Price Statistics Manager – Stats SA

What’s keeping the lid on, relatively speaking, on South Africa’s inflation when many other countries are going much higher?

While the international pressures would be similar across the board, how they are reflected in prices in each country would be different, Kelly says.

At home, we can contrast the 4% inflation rate for services with the much higher increase in the cost of non-durable goods, that is to say those that we use on a daily basis, which is 13.5% .

So we feel it much more than the 7.4%.

Razia Khan, Chief Economist – Standard Chartered Bank

Economist Khan points out that developed markets have seen a faster reopening after the COVID crisis due to the fiscal stimulus they could benefit from during the pandemic.

The difference with South Africa is that for so long the rand has been able to act as a buffer against imported inflationary pressures…Given tighter financial conditions globally (like US inflation). …the rand is no longer as strong as it used to be and we don’t necessarily see the same safeguards in place in transmitting these global pressures to inflation in South Africa.

Razia Khan, Chief Economist – Standard Chartered Bank

As things stand, Standard Chartered Bank does not see local inflation returning to the target level of 3-6% before the end of the second quarter of 2023.

They expect the Reserve Bank to raise interest rates by just 50 basis points on Thursday, given the cumulative effect of its hikes so far.

Listen to the discussion on The Money Show:

This article first appeared on CapeTalk: Inflation climbs to 13-year high before interest rate decision



Inflation climbs to 13-year high before interest rate decision

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