SARB expected to take hawkish rates stance in face of elevated consumer inflation in SA
THE SOUTH African Reserve Bank (SARB) could increase interest rates aggressively for the remainder of the year as consumer prices are expected to remain elevated underpinned by an increase in fuel prices.
Data from Statistics South Africa (Stats SA) yesterday showed that consumer prices continued to increase in March due to rising global oil and food prices as a result of the ongoing war between Russia and Ukraine. Stats SA said the annual inflation rate in South Africa rose to 5.9 percent in March from 5.7 percent in February, and just below the upper limit of the SARB’s monetary policy target range of 6 percent.
This consumer price index (CPI) print also marked the 11th consecutive month in which annual inflation has been higher than the midpoint of the SARB’s target range of 3 to 6 percent.
Last month, the SARB hiked interest rates by 25 basis points for the third time since November and revised its headline inflation forecast for this year to 5.8 percent from 4.9 percent, primarily due to the higher food and fuel prices.
BNP Paribas South Africa’s senior economist, Jeff Schultz, yesterday said that they expected price pressures to prove more challenging by the middle of the year. He said they anticipated a more protracted breach of the SARB’s upper 6 percent target range again from June.
The headline inflation would struggle to come back towards the 4.5 percent midpoint target until the second half of 2023. “This, we believe, could prompt the SARB to step up the pace of hikes from its May Monetary Policy Committee meeting, where we expect 50 basis points hikes in May and July followed by steady, successive 25 basis points hikes in each meeting, thereafter, until May next year,” Schultz said.
“We don’t believe that current excessive load shedding will deter the central bank from acting to ensure the anchoring of inflation expectations at its current 4.5 percent midpoint.”
Stats SA said transport, housing and utilities, and food and non-alcoholic beverages, were the most significant contributors to the inflation reading.
Stats SA director for CPI Operations Lekau Ranoto said the transport index in March was driven higher by increases in toll fees, air transport and bus fares, while food and non-alcoholic beverages inflation was a bit softer in March.
“Fuel prices increased by 7.2 percent between February and March, with inland 95-octane petrol rising by R1.46 per litre to reach a record high of R21.60 per litre,” Ranoto said.
“Food categories that registered price increases between February and March include bread and cereal, meat, milk, eggs and cheese, fish, and sugar, sweets and desserts.”