Price hike double-blow to hit South Africa

Source: Supermarket & Retailer

South African motorists can expect another record-high petrol price hike in April, with suppliers and manufacturers also likely to pass on additional costs to consumers as they cannot absorb these rapid fuel increases, say economists at the Bureau for Economic Research (BER).

The combination of the rising oil price on fuel and food costs will lead to rapidly increasing inflation, the group said in a research note on Monday (7 March).

The BER now forecasts that headline Consumer Price Inflation (CPI) will average 5.5% in 2022 – up from its initial 5% forecast in January. Given the further oil price surge in recent days, this updated forecast is already outdated, with further upward revisions required if oil stays at these levels, it said.

“This is especially the case as a growing list of local companies are commenting that they can no longer absorb a sustained rise in input costs and will now start to pass these on to the end consumer.

“These second-round price effects risk compounding the direct impact that the higher fuel price will have on driving measured South Africa inflation higher.”

It added that the additional upward pressure on inflation will squeeze household purchasing power across the globe, especially in the Euro Zone and the UK where gas forms an important part of the energy mix.

“Therefore, by exacerbating global price pressures, the Russia-Ukraine war will weigh heavily on the near-term world and domestic growth,” it said.

Because of the likely adverse domestic growth impacts of higher fuel and food prices, as well as the downside global growth risks, the BER said that it expects the South African Reserve Bank (SARB) will increase the policy interest rate by another 75bps in 2022.

“The next 25bps hike is pencilled in for the end of March. However, given rising risks of secondary price effects emerging and in order to anchor inflation expectations, the risk is that the SARB sees the need for a more aggressive, front-loaded hike in March. Still, such a move will risk compounding the impending hit to real GDP growth.”

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