SA to feel pinch as price hikes loom

2015-04-29 00:00

BRACE to face another round of price increases.

Inflation inched up to four percent in March from 3,9% in February, but more significantly, the increase ends six months of decline in the rate caused mainly by lower fuel prices.

It signals a trend that could see inflation back up to six percent at year-end, according to economists.

Pietermaritzburg residents, however, will have to dig deeper in their pockets again as the draft municipal budget this week proposed a 12,28% increase in electricity and 8,2% in water tariffs, figures that far outstrip to the inflation rate.

On top of this, Eskom is approaching the energy regulator for a bigger increase this year.

Johan van Tonder, economist and researcher for Momentum, said there are a number of reasons why inflation may easily hit six percent this year.

The first reason is the approximate 15% weakening of the rand against the dollar so far this year, which has a “cost-push” effect on local prices — imports, oil and food commodity prices are all dollar-based.

The impact of the weaker currency has not yet markedly filtered through to the economy, “but at some point we must start feeling it”, Van Tonder said.

The second reason is food prices. The global prices of food commodities has generally been lower so far this year, but Maize SA said recently local prices had increased by close to 30% due to drought.

Maize, a staple food and which is used also as feed for poultry and meat farmers, is expected to become more expensive later this year.

Another factor that could weigh on consumer pockets in the next few months is the possibility of an interest rate increase.

Van Tonder also said the Reserve Bank may be tempted to lift interest rates this year. If the U.S. lifts interest rates, as is widely speculated, the ­Reserve Bank may have to move in tandem to avoid a secondary ­inflationary impact, he said.

The weak economy — an interest rate increase will further depress the economy — may, however, force the bank to delay an interest rate increase, he said. The Monetary Policy Committee next meets on May 19.

Reasearch by Unisa/Momentum released this week shows South African households were dealt a hefty blow last year, as their net wealth, after inflation, increased by only 0,8%.

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