Inflation soars to 13-year high ahead of interest rate decision

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Inflation soars to 13-year high ahead of interest rate decision

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| Bruce Whitfield talks to Stats SA’s Patrick Kelly and economist Razia Khan (Standard Chartered Bank) about the latest CPI numbers.

South Africa’s annual consumer price inflation rocketed to 7.4% in June.

In May it had risen to what was already a five-year high of 6.5%

RELATED: Inflation jumps to 5-year high, breaks through Reserve Bank target range

The June consumer price index (CPI) number is the highest in 13 years, says Statistics SA.

It comes ahead of the Reserve Bank’s interest rate decision looming on Thursday.

RELATED: Consumer price inflation hits 13-year high for June

The main contributors to the 7,4% annual inflation rate were food and non-alcoholic beverages.

Then came housing and utilities, followed by transport, and then miscellaneous goods and services.

The cost of food and non-alcoholic beverages increased by 8,6% year-on-year, according to Stats SA.

Fuel prices were up by 45,3% in June, representing the largest annual increase for fuel since the current CPI series began in 2009.

RELATED: Inflation and the end of the fuel levy spell high costs for consumers

Bruce Whitfield interviews Razia Khan, Chief Economist and Head of Research for the Middle East and Africa at Standard Chartered Bank.

He also talks to Patrick Kelly, Chief Director for Price Statistics at Stats SA, who places the current 13-year high in perspective.

If we think back to that time [May 2009], we were just coming out of a global financial crisis and the rand was sliding quite dramatically – for many people that is a long-distant memory.

Patrick Kelly, Chief Director for Price Statistics – Stats SA

Food and non-alcoholic beverages on the one hand, and fuel prices on the other are really the key drivers of inflation. Both of those have high weights in the overall basket of the CPI, so when prices for those products do accelerate more quickly than others we see these sorts of high levels of inflation overall.

Patrick Kelly, Chief Director for Price Statistics – Stats SA

What is keeping the lid, relatively speaking, on South Africa’s inflation while many other countries are going much higher?

While the international pressures would be similar across the board, the way they reflect in prices in individual countries would be different Kelly says.

At home, one can contrast the 4% inflation rate for services with the much higher increase in the cost of non-durable goods, i.e. those we use on a day-to-day basis which is 13.5%.

So we feel it a lot more than the 7.4%.

Razia Khan, Chief Economist – Standard Chartered Bank

Economist Khan points out that developed markets have seen a faster re-opening after the COVID crisis because of the fiscal stimulus they could enjoy during the pandemic.

The difference with South Africa is that for so long, the rand could act as a buffer against imported inflation pressures… Given the tightening of financial conditions globally (like US inflation)… the rand is no longer as strong as it was and we don’t necessarily see the same safeguards in place in the pass-through of these global pressures into inflation in South Africa.

Razia Khan, Chief Economist – Standard Chartered Bank

As things stand, Standard Chartered Bank doesn’t see local inflation returning to the 3-6% target level until the end of the second quarter of 2023.

They foresee the Reserve Bank raising interest rates by just 50 basis points on Thursday, given the cumulative effect of its hikes so far.

Listen to the discussion on The Money Show:

This article first appeared on CapeTalk : Inflation soars to 13-year high ahead of interest rate decision

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