South Africa’s inflation rate is heading to the 8% territory on the back of higher fuel prices, while rising wages could further stoke inflation and steeper interest rate hikes, economists have warned.
Bureau for Economic Research (BER) economists noted in their weekly review of the economy that the country would probably be headed for even higher inflation territory when Statistics SA releases its latest consumer price inflation (CPI) data on Wednesday.
“Considering that the petrol price rose by more than R2/litre at the beginning of the month and it is also a fairly high survey month with electricity, water and utility rates surveyed, we are set for a large month on month (m-o-m) rise in headline CPI. Our forecast is for an increase of 1.5% m-o-m, which will push the annual rate up to a projected 7.8% from 7.4% in June,” the BER said.
It noted that SA Reserve Bank (SARB) Deputy Governor, Kuben Naidoo, had told Parliament’s portfolio committee on finance that the latest wage settlement survey from Andrew Levy had shown that the average rise in wages had amounted to 6.1% in the second quarter of 2022, up from around 4.5% in the first quarter. If not accompanied by productivity gains, Naidoo expressed concern that the rise in wages would further stoke inflation, which is already well above the SARB’s 3-6% target range.
“While our baseline remains for a 50bps repo rate hike at the SARB’s next interest rate meeting in September, concerns about higher wage increases could be a factor that tilts the decision towards another hike of 75bps,” the BER said.
Globally, investors are contending with a plethora of US Federal Reserve speakers who each put their own nuance on the outlook for the US policy interest rate.
“Intertwined with this was a mixed set of data from the world’s largest economy. These included poor housing market figures, a substantial divergence in the latest regional manufacturing indices, better-than-expected weekly jobless claims, and as outlined in the international section, firm retail sales,” the BER said.
“Retail sales also surprised on the upside in the UK. The strong sales reports on both sides of the Atlantic rekindled expectations that developed country central banks had further to go in raising policy interest rates, which weighed on investor risk appetite. Outside of the major economies and excluding Turkey, it was indeed another week of central bank policy rate hikes, with the Norges Bank (Norway) and the Reserve Bank of New Zealand both hiking by 50bps,” the economists added.
