Economists predict inflation to dip to average of 5%

Consumers are not out of the woods yet, with another repo rate hike said to be on the cards for South Africans in the coming months.

But, there is hope at the end of the tunnel as experts foresee inflation dipping to an average of 5% next year, relative to the South African Reserve Bank’s 5.7%.

The South African Reserve Bank (SARB) Monetary Policy Committee (MPC) members are set to follow in favour with another 75 basis point hike in the repo rate this coming September.

Last month, one member of the MPC preferred a larger increase of 100 basis points and three favoured an increase of 75 basis points.

Only one member opted for a 50-basis point increment, which was the consensus view going into the meeting.

According to Momentum economist, Sanisha Packirisamy, an acceleration in the pace of interest rate hikes and a more hawkish split of preferences among the Monetary Policy Committee (MPC) members suggest a further frontloading of the local interest rate hiking cycle.

Packirisamy, who is responsible for providing a macro framework to inform investment opportunities and strategies, explained that an accelerated pace of global tightening, a weaker rand (driven by dollar strength in reaction to rising recession fears) and risks of above-inflation wage settlements and electricity tariffs likely prompted more assertive action from the SARB.

The SARB is likely to maintain an aggressive tone as it responds to rising local inflation, persistent upside risks to the inflation trajectory, a more rapid pace of global interest rate normalisation and a marked deterioration in longer-dated inflation expectations.

“We now expect SARB to follow with a 75-basis point hike at the September meeting and a 50-basis point hike in November, with risks of additional hikes if the peak in inflation is higher or later than viewed by the market.

“In our view, with core (underlying) and services inflation remaining subdued, and signs of consumer demand are increasing pressure.

“Inflation should fade in the coming quarters after spiking around September/October. We see inflation dipping to an average of 5% next year relative to the SARB’s 5.7%,” she said.

SA’s basket case

According to Statistic SA and Momentum Investments, the percentage rise in items in SA’s consumer basket have experienced the highest rate of inflation since June last year, seeing a jump of around 7.4% –  the biggest risers being fuel, cooking oil and electricity.

The fuel price has risen by a staggering 45.2% since June 2021, only recently offering a semblance of relief, which a decrease of R1.32.

But, this does not take away from the fact that the price of petrol have risen by more than R6 since the same time last year, which is over and above the inflation margin, outside of the inflation calculator predictions.

Meanwhile, Stats SA recorded that cooking oil has seen price increase by 32% since June 2021.

Oil markets were likely to stay volatile. The increase in prices were accredited to the drought experienced in some parts of the world, which led to rumours that there would be scarcity of soy and canola, as well as the war in Ukraine, which saw uncertainty around the planting of sunflower seed around April and May this year.

SA’s electricity woes are seeing no end in sight, which a massive tariff hike said to be on the cards too.

Eskom has reported that it needs to hike tariffs to fund President Cyril Ramaphosa’s new energy plan. The plan included boosting the recruitment of skilled workers at Eskom, allowing Eskom to purchase power from private producers. But did not make any mention of a provision of funding, the chief financial officer, Calib Cassim, recently said.