SOUTH African stocks slumped to a two-week low on Friday, tracking a global sell-off as the annual inflation rate in the US soared to a 40-year high again.
Inflation in the US unexpectedly accelerated to 8.6 percent in May, the highest since December 1981, and higher than market forecasts of 8.3 percent, as fuel prices hit a record high and the cost of food soared.
This raised further concerns that consumer prices have not peaked yet, increasing prospects of more aggressive interest rate hikes by the US Federal Reserve through September.
Markets on Friday were then soon gripped by fears that aggressive monetary tightening by major central banks could spread in the emerging markets too.
Other central banks around the world, including the European Central Bank and the Reserve Bank of Australia, have also set a more hawkish tone, as inflation is not showing signs of peaking.
The JSE All Share Index ended the week 1.6 lower at 67 804 points, while the Top40 Index was down 1.7 percent to 61 348 points, with losses led mainly by commodity-linked stocks.
Anglo American fell 5.4 percent to R709 per share, African Rainbow Minerals at 5 percent to R233.50 and Exxaro Resources retreated 4.7 percent to R201.90 per share.
In contrast, gold stocks surged led by gains in Gold Fields, which shot up 9.5 percent to R156.50 per share, Harmony Gold was up 6.7 percent to R51.95 per share, and AngloGold Ashanti by 4.3 percent to R276.60 per share after gold rebounded to a four-week high.
Gold prices recovered from early losses to trade at $1 874 (R290 522) an ounce on Friday, the highest level in four weeks, as recession woes more than offset headwinds from a stronger dollar.
The global economic outlook remains clouded by the war in Ukraine, rising borrowing costs, ongoing supply disruptions, and high commodity prices.
Investec chief economist Annabel Bishop said that price pressures were expected to remain heady over the second and third quarters of 2022, negatively impacting consumers.
Bishop said South African interest rates were likely to experience a 50 basis points hike in July, and a 25 basis points lift in the repo rate in September to curb rising inflation.
She said South Africa was now at material risk of the third quarter experiencing inflation above 6 percent, and peaking in September at 7.2 percent, although much will depend on the length of the Russian/Ukraine war and so disruptions to agricultural commodity supply chains.
“CPI inflation in May is expected to rise to 6.2 percent, while June sees it lift to at least 6.8 percent on the R2.33/litre hike in the petrol price, base effects, food price pressures,” Bishop said.
“High commodity prices are flowing through rapidly to consumers in South Africa via higher transport and food prices, and another petrol price hike is currently building for July of R2.00/litre.
“Sanctions on Russia, adverse weather conditions, the disruption to transport routes in the Black Sea from the Russian/Ukraine war and other issues facing Ukrainian grain exports will all support grain and cooking oils prices, and risk driving price inflation higher.”
Meanwhile, the rand also plunged as the dollar surged after hot US inflation data raised the likelihood of prolonged aggressive interest rate hikes.
The rand closed Friday 0.23 percent lower at R15.85 against the US dollar, down 2.19 percent from its previous close.