THE MARKETS yesterday ended the day in the red as inflation in South Africa looks set to remain elevated, a move that will prompt an aggressive monetary policy and raise the cost of living.
The JSE All Share Index reversed course and eased 0.8 percent to around 69 120 index points by 4pm, dragged by tech stocks and as the mining sector moved into negative territory.
The rand also moderated by 0.04 percent to R15.92 against the dollar after trading firmer throughout the day.
Statistics South Africa (StatsSA) yesterday said the annual headline inflation rate in South Africa remained unchanged at 5.9 percent in April due to rising global oil and food prices.
StatsSA director for price methodology James Khami said there were notable monthly increases for oils and fats, hot beverages and meat, with the average price of a 750ml bottle of sunflower oil increasing from R31.24 in March to R34.89 in April.
“This is the third time in 5 months that the annual rate was 5.9 percent, testing the 6 percent upper limit of the South African Reserve Bank’s monetary policy target range,” Khami said.
“The last time that the headline inflation was above the target range was 5 years ago when the rate was 6.1 percent in March 2017.
“Fuel prices continued to cause pain in April 2022, increasing by 2.2 percent between March and April to reach new record highs. Fuel is 29.2 percent more expensive than a year ago.”
This marked the 12th consecutive month in which annual inflation has been higher than the midpoint of the South African Reserve Bank (SARB) target range of between 3-6 percent.
South African motorists are bracing for a significant petrol price hike for June to over R2 per litre as oil prices remain elevated, adding to the lapse of the R1.50 general fuel levy relief.
FNB economist Koketso Mano said that headline inflation should continue to accelerate in the coming months and touch the upper inflation target band at 6 percent in May.
Mano said the government could provide further support to cushion consumers from escalating petrol prices, but for now, headline inflation was likely to average 6.4 percent in the second quarter.
“Furthermore, inflation should continue rising in June, as new housing inflation data comes through, and food and petrol prices continue to climb,” Mano said.
“Rising food and fuel prices should have a spill-over effect to the wage and social demands as households seek to be compensated for the rise in cost of living.
“In line with this, higher inflation expectations are likely to support a lift in structural inflation and this would warrant further tightening by the Monetary Policy Committee.”
Economists expect that the SARB could hike the repo rate by 50 basis points to 4.75 percent today, Thursday, in an attempt to tame inflation which has reached the upper end of the bank’s target range of between 3-6 percent.
However, Old Mutual chief economist Johann Els said that any possible extension to the cut in the fuel levy would impact on the CPI forecast profile.
“I still believe the Reserve Bank should only do 25 basis point increments in the hiking cycle but might decide to do 50 basis points increase in May,” Els said.
“Also, if they do 50 basis points in May they could likely skip in September or November.”
BUSINESS REPORT ONLINE