SA energy crisis biggest contributor to local inflation, says economist

SA energy crisis biggest contributor to local inflation, says economist

While the South African inflation rate is mostly influenced by external factors and international markets, FNB Chief Economist Mamello Matikinca-Ngwenya says the energy crisis remains the biggest contributor to local inflation. 

Electricity breakfast martin

Matikinca-Ngwenya's remarks come after the South African Reserve Bank (SARB)'s Monetary Policy Committee (MPC) increased the repo rate by 75 basis points on Thursday. 

This pushes the repo rate, at which the central bank loans money to commercial banks, from 5.5% to 6.25%, effective from Friday. 

On Wednesday Statistics South Africa announced that consumer inflation eased slightly to 7,6% in August from a 13-year high of 7,8% in July. 

But Reserve Bank governor, Lesetja Kganyago said South Africa's inflation was not yet under control despite a slight decrease to 7.6% in August. 

Matikinca-Ngwenya says load-shedding remains the biggest contributor to local inflation.

The continuous power cuts are also felt by Businesses, Industries, and the entire economic sector in South Africa. 

 In the second quarter, load-shedding contributed to the economy’s 0.7% contraction. 

"Unfortunately, South Africa's inflation is being influenced by external factors, for instance, food prices have increased significantly because of rising agricultural commodity prices on the back of the war in Ukraine and we would have experienced paying higher fuel prices in the first half of this year. All of those factors are external, South Africa doesn't have demand-led inflation, so it is not a demand issue internally that is causing inflation,” says Matikinca-Ngwenya.  

“Locally what would put up inflation is an energy crisis. Eskom is currently asking for a 32% increase in electricity prices, if granted at that percentage, that would have a material impact on local inflation," she notes.  

Matikinca-Ngwenya says another repo rate hike is expected in November. 

"We expect the Reserve Bank to increase the repo rate by 50bps at the November MPC meeting, pushing it to 6.75%, the level where we think the policy rate will peak before falling in early 2024. The continuation of aggressive rate increases is partly underpinned by aggressively tightening global financial conditions, the weaker domestic currency and domestic wage pressures as workers demand higher wages to compensate for the higher cost of living."  


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