/ 11 May 2023

Kganyago: Load-shedding forcing consumer price hikes

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Reserve Bank governor Lesetja Kganyago

South Africa’s domestic infrastructural bottlenecks will continue to exert pressure on the inflation outlook, Reserve Bank governor Lesetja Kganyago said on Wednesday.

In a lecture at the University of Johannesburg, Kganyago reiterated the central bank’s prediction that the country’s energy crisis would shave off two percentage points from growth this year.

“In addition to the initial studies on the impact of load-shedding on growth, there is recognition and growing evidence that the country’s ongoing energy supply challenges are impacting prices as well,” he said. 

Kganyago noted that the central bank estimates that rolling blackouts, which have persisted at an elevated stage six, will add 0.5 percentage points to headline inflation in 2023. This calculation has taken into account the cost of alternative energy sources such as solar or backup power generators — costs that will probably be passed on to consumers. 

Retailers in South Africa said that consumer price hikes were unavoidable due to rising input costs including electricity backups.

In its latest Essential Food Pricing Monitoring report, the Competition Commission said retailers, processors and producers had passed on unjustified price increases on essential products such as sunflower oil and bread to consumers over the past two years. 

The commission launched an investigation into “opportunistic price increases” during this period. 

“In South Africa, food inflation has continued to surprise to the upside, despite the decelerating trend observed in global agricultural commodities,” Kganyago said on Wednesday.

“The expectation is for market conditions to improve gradually over the near term. However, the ongoing electricity supply challenge is likely to have more of an impact on energy-sensitive markets, such as poultry and dairy farming.”

Earlier this year, more than 10 million day-old chicks were culled in the egg and poultry industries, the result of ventilation shutdowns brought on by stage six load-shedding.

Looking ahead, Kganyago said, domestic headline inflation is projected to remain elevated, returning to the target range in the third quarter of 2023 and averaging 6% for the year. 

A more pronounced moderation in inflationary pressures is only expected in the latter years of the forecast horizon, with headline inflation projected to average 4.9% in 2024, before reaching the midpoint of the target range only in 2025.

The governor said the 0.2% economic growth forecast for this year, and the projected average of 1% in the following two years “is barely an expansion”.

“This is a reflection of the headwinds that the domestic economy continues to face. The ongoing infrastructure challenges, especially for electricity, continue to impose a hard constraint on growth,” he added.

He said he trusted that President Cyril Ramaphosa’s government would remain committed to implementing structural reform measures, especially with regard to logistics and electricity.

“We believe that the implementation of much-needed structural reforms will unlock South Africa’s growth potential and, in turn, address the long-standing unemployment challenges of the country,” Kganyago said.