Inflation rates expected to increase in SA


Economists at the Bureau for Economic Research (BER) says that South Africa’s most important economic release is the Consumer Index (CPI) which will be released this week on Wednesday, 22 June by Statistics SA.

In a research note, the BER stated that “After remaining unchanged at 5.9% in April, we expect inflation to accelerate to 6.1% in May – this is in line with the consensus forecast,”

“This would be the first time since March 2017 that inflation tops the upper limit of the South African Reserve Bank’s inflation target range – although the May print is still unlikely to be the peak.”

Across global markets, central banks look to rate hikes to bring inflation figures under control. In South Africa, inflation reached 5.9% in April 2022.

The Reserve Bank’s Monetary Policy Committee raised the repo rate by 100 basis points to 4.75% by 31 March 2022 and indicated that there were likely to be further increases in the second half of the year.

“It is becoming increasingly clear that, in many cases, central banks are prepared to accept weaker near-term real GDP growth outcomes if that is what it takes to get decades-high inflation under control,” the BER said.

“The more hawkish tilt by global central banks, but perhaps more importantly the accompanied weaker rand exchange rate, if sustained, could sway the SA, South African Reserve Bank (SARB) to again increase the South African policy rate by 50bps in July.”

Jeff Schultz, senior economist at BNP Paribas South Africa, said rate hikes are expected to continue in the country for the rest of the year.

“We now expect the SARB to maintain a 50bp pace of hikes for its three remaining meetings in 2022 as inflation proves more persistent alongside a smaller output gap”.

“Our terminal policy rate of 6.50% is now likely to be achieved by January 2023 from our original May 2023 forecast, much earlier than the SARB’s QPM suggests. For fiscal policy, a meaningfully higher 2022 growth forecast, elevated inflation and still supportive commodity prices mean that we now see more than 1.7pp of GDP in revenue upside in FY22/23.”

On Tuesday, June 14, Standard Bank Group announced that it has revised its rate forecast for 2022, with the bank now expecting further increases as inflation continues to rise.

“In March 2022, Standard Bank Research expected interest rates in South Africa to increase by 100 basis points for the full year. This has been revised up to 175 basis points,” it said.

By Palesa Bacwadi

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