Bad news for prices in South Africa – including an R2 petrol hike in July

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The ongoing war in Ukraine, escalating international sanctions and unfavorable local weather conditions indicate that South Africa will see higher prices and inflation levels for longer than initially expected.

Global and local inflation is high and price pressures are expected to remain strong through the second quarter of 2022 and into the third quarter of 2022, which will negatively impact consumers, said Investec Chief Economist Annabel Bishop in a research note Wednesday, June 22.

Investec forecast an interest rate hike of 50 basis points in July, followed by another hike of 25 basis points in September and 25 basis points in November.

“Despite producing enough food to have high food security, South Africa is a price taker for most of its agriculturally produced commodities, whether through import price parity or export, which means that international food prices are a key driver of local food costs. The Economist Commodity Price Index recorded a 19.4% year-on-year increase in global food agricultural prices,” she said.

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“Increased protectionism, including outright bans by some countries on certain exports, as well as increased sanctions on Russia and the impact of Chinese lockdown restrictions have led to already high global food prices before the Russian-Ukrainian war. – due to adverse weather conditions and increased demand – even higher this year.

Bishop said expectations of collapsing food and energy prices should be avoided, with the Russian invasion of Ukraine intensifying, and therefore sanctions against Russia, and NATO now warning that the war could last for years, providing no end in sight for related pricing pressures.

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In addition, adverse weather conditions persist in some parts of the world and the country, and are indeed expected to intensify as climate change strengthens, she said.

Bishop said CPI inflation in June is expected to top 7.0% year-on-year due to the R2.33/litre rise in petrol prices, base effects , food price pressures and potentially some second round effects of higher inflation on rents/equivalent owner rent and other categories.

“High commodity prices quickly pass through to consumers in South Africa via rising transport and food prices, and another The petrol price hike is currently in construction for July of R1.92/litre.

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“We expect CPI inflation to average 6.5% year-on-year this year as the war between Russia and Ukraine drags on longer than expected and the effects of war and de-globalization intensify on price pressures, leading to rising inflation expectations globally and domestically.”

The persistence of high global and local inflationary conditions, and in particular high price pressures at the output level, also does not create the environment for a rapid deceleration of domestic inflationary pressures, he said. she declared.


Read: Here’s how much groceries, petrol and electricity cost in South Africa now – compared to a year ago

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