After two years of lockdown restrictions, the war in Ukraine, and the return of a higher inflation environment, it seems the chickens have come home to roost, say analysts at Absa.
Citing consumer spending data, the bank noted that economic pressure on consumers appears to be mounting.
“Further pressure in terms of the fuel price hikes and the cost pressure building in the supply chains as a result, certainly paints a bleak picture on consumer health and economic outlook for South Africa,” the bank said.
Absa said that South Africa’s recovery from the impact of lockdowns looks like it might be a difficult one for the majority of consumers, especially because of the compounding effect of the interest rate hikes as well as the increasing fuel and energy prices.
This was echoed by economists at FNB who noted that South Africa’s inflation rate is set to breach the 6% level in May. Furthermore, inflation should continue rising in June, as new housing inflation data comes through, and food and petrol prices continue to climb, it said.
CPI data published by Stats SA on Wednesday (18 May) recorded the figure unchanged at 5.9%. However, this is still at the upper limit of the range set by the Reserve Bank, with the central bank itself expecting it to hit 6.2% in May.
“As it stands, the blow-out in the rand has driven the month-to-date under-recovery in the petrol price to over R2 per litre, and this would add to the lapse of the R1.50 general fuel levy relief. Oil prices could also gain support from an improved demand outlook, as China eases lockdown restrictions.
“The government could provide further support to cushion consumers from escalating petrol prices, but for now, headline inflation is likely to average 6.4% in the second quarter,” Absa said.
The bank noted rising food and fuel prices should have a spill-over effect on wage and social demands as households seek to be compensated for the rise in the cost of living.
Mineral resources and energy Gwede Mantashe has already indicated that government is unlikely to give further relief to motorists in June.
In April, Mantashe and finance minister Enoch Godongwana announced a temporary reduction in the general fuel levy by R1.50 per litre for April and May.
A decision not to extend the relief would mean that motorists face a scenario of paying up to R3.70 per litre more in June, with the most recent under-recovery in petrol prices recorded at around R2.25 per litre.