June 30, 2022

Bad news for prices in South Africa – including a R2 petrol hike in July

The continued battle in Ukraine, intensifying worldwide sanctions, and adversarial native climate all level to South Africa seeing increased prices and inflation ranges for longer than initially forecast.

Each world and native inflation is excessive, and value pressures are anticipated to stay heady over Q2 2022, and into Q3 2022, negatively impacting customers, stated Investec chief economist Annabel Bishop in a analysis notice on Wednesday (22 June).

Investec has pencilled in an rate of interest hike of 50bp in July, adopted by one other 25bp improve in September, and one other 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 stated.

“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 stated expectations for meals and power value collapses must be guarded in opposition to, with the Russian invasion of Ukraine intensifying, and so sanctions in opposition to Russia, and NATO now warning that the battle might final for years, offering no finish in sight for associated value pressures.

Moreover, adversarial climate circumstances persist in some areas globally and domestically, and certainly are anticipated to accentuate as local weather change strengthens, she stated.

Bishop stated CPI inflation in June is predicted to rise above 7.0% y/y on the R2.33/litre hike in the petrol value, base results, meals value pressures and probably some second-round results of rising inflation on leases/proprietor equal lease and different classes.

“Excessive commodity prices are flowing by quickly to customers in South Africa through increased transport and meals prices, and one other petrol value hike is at present constructing 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 excessive inflationary circumstances globally and domestically, and in specific excessive value pressures on the manufacturing degree additionally doesn’t present the surroundings for a fast deceleration in home inflationary pressures, she stated.

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