Electricity hikes could push inflation rate up by 0.75 percentage point

(Gianluigi Guercia, AFP)
(Gianluigi Guercia, AFP)

South Africa’s electricity tariff increases could push the inflation rate up by 0.75 percentage point, Reserve Bank Deputy Governor Kuben Naidoo said.

The nation’s energy regulator said last week Eskom can raise electricity prices by 9.4% from April 1, taking the total increase to 13.8%. That’s almost 50% more than the assumption the central bank used in its latest projections for 2019, which forecast inflation will stay below 5% this year.

The Reserve Bank increased its key interest rate for the first time in more than two years in November, even as the economy had just come through a recession and hasn’t expanded at more than 2% annually since 2013.

It kept borrowing costs on hold in January and trimmed its projection for policy tightening as it lowered its inflation forecast.

While the central bank doesn’t position itself as being in a hiking or softening cycle, “it is no secret that the US is now in a softer interest-rate cycle and this will lessen pressure on the rand,” Naidoo said Wednesday at a conference in Cape Town.

Inflation slowed to a 10-month low of 4% in January.

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