Some good news has become known with the South African consumer inflation decreasing in July to 4.6% year-on-year from 4.9% which was recorded for June, according to Statistics South Africa. However, most prices on other things such as meat, food, electricity, and petrol, still show potential for further increases.
This data print was significantly closer to the midpoint of the target range of the central bank which was between 3% and 6% on annual inflation, which is subsequently parallel with what economists were expecting after a 30-month high of 5.2% in May, during a time when there were increasing concerns that global prices would rise.
The main contributors to this reading were food as well as non-alcoholic beverages, and transport, which saw increases of 6.7% and 8% respectively in comparison with last year.
The Governor for the South African Reserve Bank, Lesetja Kganyago stated in July that he anticipates that South Africa’s economy would see pre-pandemic levels within the next two years, sometime during 2023.
Further analysis and what this means for SA
Consumer price growth saw increases of at least 1.1% per month, and annual inflation hit a 14-month high in April. There were riots, violence, and destruction plaguing two of the busiest provinces in South Africa in July.
This, combined with rising inflation elsewhere in the world along with steadily increasing oil prices, have resulted in bets of further rises in consumer prices on local soil.
Because of an existing weak economic environment, clothing inflation is only at 1.6% while food inflation has increased to 7%, electricity has risen to 13.6%, and petrol up to 15.2%, with expectations of sharp rises to 20% within the next month.
The Johannesburg Stock Exchange (JSE) reacted negatively to this news with the index retracting some solid gains during the week.
While the SA Reserve Bank now has the room to keep lending rates flat, inflationary pressure in South Africa continues to moderate downwards, which can be expected with base effects dissipating.
These base effects have resulted in fuel price movements in addition to the imputations of pricing data which was not available during the hard lockdowns in 2020. This has resulted in muted inflation, which is currently being witnessed, helping to assist the SA Reserve bank in keeping rates as low as possible, and for longer.
The next meeting regarding lending rates will occur in mid-September, one month before the new Finance Minister, Enoch Godongwana is set to deliver his medium-term budget policy statement.
While the low lending rates have given some space for South Africa’s cash-strapped consumers who are consistently facing unemployment rates well above 30% and the rise in inequality and poverty, some pressure will be relieved on Godongwana as well as the National Treasury, but not much, and not for very long.
According to economists, the current outlook is that the pressurized monetary environment in South Africa is set to prohibit any sharp, sustained acceleration in price growth.
This is if the Reserve Bank can be given enough room to maintain the accommodative policy for awhile longer than its peers, which is if financial market stability holds on and the South African rand can remain stable.
South Africa is currently still fighting the third wave of the Covid-19 pandemic, with the phased approach towards vaccinating the population moving very slowly. Of 56 million South Africans, more than 7.7 million have received the first dose of Pfizer, with more than 100,000 fully vaccinated, representing only 1.6% of the population.
While efforts are slow to attempt to reach “herd immunity” to protect residents against a looming fourth wave, South African businesses are struggling to get ahead of the tide of possible lockdowns that may follow if South Africa experiences another wave, slowing economic growth and the future outlook even further.