4 scenarios for price hikes in South Africa in the coming months

 ·31 Mar 2022

Professional services firm PwC has published an updated financial forecast for South Africa on the back of Russia’s invasion of Ukraine and global inflationary pressures.

Inflation risks have escalated over the past month, given global commodity market developments. Global wheat prices, for example, have increased to a 14-year high. On the energy front, South Africans already paid R1.46/litre more for petrol this month, with the risk of a similar increase in April.

PwC now expects inflation to average 5.2% this year under its baseline scenario from a mean of 4.6% in 2020.

However, if international market developments remain unfavourable deep into the second half of 2022, this year’s average could increase to 5.9% during the current calendar year, the firm said.

“If under a hypothetical, but not impossible, stress scenario, food inflation climbs to 10% y-o-y (from 6.7% y-o-y in February) and transport inflation rises to 20% y-o-y (from 14.3% y-o-y in February) for a period of four to six months, the headline inflation number could be 1.5 percentage points higher than the baseline during H2 2022 and heading into 2023,” the firm said.

“This will likely result in inflation breaching the upper limit of the SARB’s target range over the short term.” This could see inflation climb as high as 6.7%.

At the other end of the scale, PwC has forecast an upside scenario of 4.9%.

The South African Reserve Bank’s monetary policy committed decided this month to lift interest rates by another 25 basis points – three of the committee members favoured this increment while the other two actually called for a 50 basis point increase.

The SARB’s forward guidance currently suggests a year-end repo rate of 5.06% compared to a projection in January of 4.91%.

“There is not much difference in these two forecasts; this suggests that the SARB has not significantly altered its planned path of monetary policy tightening over the short- to medium-term,” PwC said.

“As such, we still expect the repo rate to close this year at 5.00% and return to its pre-pandemic level of 6.50% by the close of 2024. For now, with a repo rate at 4.25%, monetary policy is still very accommodative.”

Read: This is the average salary in South Africa right now

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