Triple-blow price hikes for South Africa

Auditing and consultation firm PwC has warned South African households to expect a trifecta of price increases this year, with the first blow coming soon.

In the group’s first Economic Outlook report for the year, it flagged price hikes for electricity, water and insurance as key items that will likely put pressure on consumers.

This in turn is expected to have a knock-on effect for inflation, which itself will feed the trajectory for rate cuts in 2025.

South African Reserve Bank governor Lesetja Kganyago said in November that, while inflation is expected to be contained in the near term, the medium-term outlook is highly uncertain due to these pressures.

If, for instance, Eskom’s coming wage hike for 2025 is larger than expected, this could have a significantly adverse effect on consumer pricing, pushing inflation over the SARB’s 4.5% target, PwC said.

Electricity price hikes

Nersa’s subcommittee on electricity met this week to put forward its recommendations relating to Eskom’s MYPD6 application.

The power utility is seeking an effective 66% hike in electricity prices over the next three years, starting with a 36% hike in 2025.

PwC said that there is no clear indication of how big Eskom’s price hike will be—the subcommittee elected to keep their recommendations hidden from the public—but is pencilling in a 10%-20% hike, given the historical gaps between what Eskom wants and what Nersa grants.

Andries Rossouw, PwC South Africa Energy, Utilities and Resources (EU&R) Leader, noted that over the past 13 years, tariff increases have averaged 10.8%.

Over the same period, Eskom has received, on average, an increase of just over half (55%) of the increment it requested from Nersa.

The SARB is assuming electricity price inflation of 15.0% in 2025Q3.

Nersa is expected to announce its decision on Eskom’s application before the end of January 2025.

Water prices

Each year, the country’s 144 Water Services Authorities (WSAs) independently set their water tariffs.

According to Nino Manus, PwC South Africa Water Management Leader, there is no comprehensive public data set covering all WSAs, making it challenging to track water price increases for each authority.

“However, Stats SA data indicates that water prices have consistently increased above the inflation rate since 2017,” he said.

Research published by the central bank in 2023 indicates that cost drivers for these above-inflation increases include slow growth in infrastructure grants; high growth in employee remuneration, bulk water and electricity costs; and high growth in debt impairments.

This trend will undoubtedly continue in 2025.

Insurance premiums

One of the sometimes overlooked price pressures comes from insurance.

PwC noted that the cost of insurance across all categories was up 8.3% year-on-year in November 2024, and the Reserve Bank is concerned that insurance inflation could accelerate in 2025 given the continued increase in risk factors across a variety of insurance-covered events.

For example, short-term insurers are seeing an increase in claims related to extreme weather events like floods. This has required some of them to substantially increase the cost of related coverage.

For transport-related insurance, the country’s deteriorating physical infrastructure is resulting in more claims for pothole damage to vehicles.

In the current season, drought conditions have also contributed to more wildfires and associated claims.

One of the biggest insurance costs households will have to contend with directly in 2025 is health insurance, where medical aid schemes have hiked prices by 10.7% on average.

These price hikes are by no means the only things South African households have to contend with.

Food prices are also edging higher, with the latest inflation data from Stats SA showing as much. There are also concerns that higher-than-inflation wage settlements for unions will cause demand-side inflation.

All these moving parts, and their impact on the inflation outlook, mean that the scenarios for rate cuts in 2025 vary.

In the baseline scenario, 50 more basis points are expected to be cut in 2025. On the upside, this could be 100 basis points. In the downside scenario, only 25 basis points.