Johannesburg - South Africa's headline inflation could rise by half a percentage point over the next 12 months if power utility Eskom's request for a 25-percent increase in electricity tariffs is granted by the energy regulator, Reserve Bank Governor Lesetja Kganyago said on Thursday.
“We have analysed a number of scenarios on the inflation forecast. A scenario where the full 25-percent increase is granted to Eskom would increase inflation over a year by about 0.5 percentage points,” Kganyago told an economic conference in Johannesburg.
Africa's most advanced economy is in the midst of its worst electricity crisis and Eskom, supplier of 95 percent of South Africa's power, has applied for a further 12.7-percent price increase following a 12.69-percent tariff hike in April.
If granted, the increase would take effect from July 1 and is likely to hit South Africa's ailing economy and cash-strapped consumers hard.
Kganyago reiterated the South African Reserve Bank's (SARB) headline inflation forecasts of 4.9 percent in 2015 and 6.1 percent in 2016, the latter falling outside its stated upper target of 6 percent.
“Further depreciation of the exchange rate, an expected increase in electricity tariffs, and higher-than-expected wage settlements have the potential to worsen the inflation outlook,” Kganyago said.
The SARB held benchmark lending at 5.75 percent at its monetary policy meeting in May, but is expected to hike rates by at least 25 basis points in July as the likelihood of a hike by its peers at the US Federal Reserve grows, and the domestic power constraints continue to hamper growth.
South Africa's year-on-year headline consumer prices were up 4.6 percent in May, compared with 4.5 percent in April.
Reuters