Africa-Press – South-Africa. The government’s administered prices on services like electricity, water and education are making it more difficult for the South African Reserve Bank (SARB) to lower inflation.
This was revealed in the latest SARB Monetary Policy Review for April, wherein the revenue services said that, despite considerable easing in global inflation over the past year, a range of important prices continues to rise strongly.
“The resulting stickiness in core inflation has slowed the path to the 2–3% inflation targets that many central banks are trying to achieve,” the SARB said.
“Accordingly, as global interest rates stay high, many emerging economies continue to experience currency volatility and, often, higher-than-desired inflation.”
The SARB explained that, locally, headline inflation has generally eased, but setbacks have emerged in food and fuel prices in recent months, pushing it closer to the upper limit of the target band.
South Africa’s latest inflation print showed CPI at 5.3% in March, well within the SARB’s target band of 3% to 6% but still far from the mid-point of the range (4.5%) that the SARB is targeting.
“As inflation risks emerge and materialise, and services prices normalise, the path back to the target midpoint is expected to take time,” it said.
“The repurchase (repo) rate at 8.25%, unchanged since May 2023, remains broadly consistent with persistent inflation, the uncertain domestic and global outlook, and getting back to the 4.5% midpoint over the forecast timeframe.”
One factor putting pressure on inflation is administered prices, which the SARB said continue to exert substantial upward pressure on headline inflation.
“These regulated, public sector-controlled prices impede efforts to bring inflation down and maintain it at the midpoint of the target band; consequently, they also erode competitiveness,” it explained.
“Electricity and water prices, in particular, have for several years inflated at rates well above the 4.5% midpoint of the inflation target band.”
Last year, it was estimated that Eskom had increased the price of electricity by 446% since load-shedding began in 2008, driving inflation in South Africa and significantly increasing the cost of doing business.
This number is likely far higher now in light of April’s electricity price increase.
At the start of April, Eskom confirmed that it will implement its annual price increase. The National Energy Regulator of South Africa (Nersa) granted Eskom a 12.74% increase for its direct customers.
“Efficiency gains in these sectors would be important to ensuring that long-run, cost-reflective prices are achieved soon,” the SARB said.
“Other administered prices, such as education and assessment rates, are influenced by headline inflation outcomes and should be more closely aligned to the target midpoint itself.”
“Reducing headline inflation would bring down administered price inflation, creating a virtuous cycle.”
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