THE SOUTH African Reserve Bank (SARB) could possibly hike interest rates by a whole percent this year in a bid to curb the runaway inflation that saw the cost of living in 2021 rising higher than it has since 2017.
Inflation in South Africa accelerated to a near five-year high in December 2021, mainly pushed up by shockingly high fuel prices, as well as the cost of food and non-alcoholic beverages.
Data from Statistics South Africa (StatsSA) yesterday showed that the consumer price index rose further to 5.9 percent in December, from 5.5 percent in November.
This was the steepest inflation rate since March 2017, pushing headline inflation uncomfortably close to the top end of the SARB's inflation range of 3 to 6 percent which could strengthen the bank's case for a hawkish monetary policy stance.
The SARB aggressively cut interest rates to 3.5 percent from when inflation hit a 16-year low of 2.1 percent in May 2020 to shore up the consumers buying power.
However, the bank resumed tightening its monetary policy in November 2021, raising interest rates by 25 basis points to 3.75 percent while assessing the risks to the short-term inflation outlook to the upside.
Analysts yesterday concurred that the anticipated near-term spike in consumer inflation toward the target ceiling likely cemented the case for a rate hike of 25 basis points while any pauses in the rate-hiking cycle would likely be only later in the cycle.
Investec chief economist Annabel Bishop said the current La Niña phenomenon had caused extreme rainfall that could see food prices rising higher. “Food price inflation is expected to climb as the above normal rainfall experienced has caused crop damage as well as delayed planting for 2022,” Bishop said.
“The SARB targets inflation in a six to 24-month period and may now look to deliver a January 25 basis points hike instead of only by March.”
Inflation was mainly driven up by prices of transport, which rose 16.8 percent from 15 percent in November, food and non-alcoholic beverages as this category remained elevated at 5.5 percent.
On a monthly basis, consumer prices were up by 0.6 percent after a 0.5 percent increase in the prior month and above market estimates of 0.4 percent rise.
Nedbank's senior economist Nicky Weimar said added inflationary pressures would stem from exorbitant electricity hikes, implied by Eskom's application for a 20.5 percent increase over 2022/23.
“In light of all the risks to the inflation outlook, combined with South Africa being well behind the curve compared to peer countries, the SARB will undoubtedly continue hiking rates this year,” Weimar said. “We expect a total of 100 basis points in 2022, followed by 50 basis points in both 2023 and 2024.”
StatsSA chief director of price statistics Patrick Kelly said the average consumer inflation for 2021 was 4.5 percent, in line with the SARB's forecast, but higher than the averages of 3.3 percent and 4.1 percent recorded for 2020 and 2019, respectively.
“December inflation reading reflects similar trends to those driving rises in the cost of living over the past few months, in particular large price rises for fuel and imported food groups such as meats, oils and fats,” Kelly said.
BUSINESS REPORT ONLINE