Reserve Bank has to respond with interest rate hikes as inflation jumps to 5.9%
South Africa's annual inflation rate jumped to 5.9% year-on-year in December 2021, a near-five year high.
It topped the 5.5% recorded last November, which was already edging towards the five-year comparison.
Statistics South Africa published its latest consumer price index (CPI) on Wednesday.
The main contributors to the 5,9% annual inflation rate were food and non-alcoholic beverages; housing and utilities; transport; and miscellaneous goods and services.
Inflation is now at the upper end of the Reserve Banks's target range of 3-6%.
Consumer #inflation continues to accelerate amid higher #fuel and food prices. Annual #CPI inflation was 5,9% in December, up from 5,5% in November.— Stats SA (@StatsSA) January 19, 2022
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Bruce Whitfield discusses the impact of the worse-than-expected inflation number with Kevin Lings, Chief Economist at Stanlib Asset Management.
(The Reserve Bank is expected to implement three 25 basis point interest rate increases during 2022.)
While some inflationary pressures (oil price, US Fed decisions) are beyond our control, government could do more about the other parameters says Lings.
Whether Eskom gets its 20% electricity price increase is another critical factor, he adds.
The problem for the Reserve Bank is that if they do nothing about this... a couple of things will probably happen.Kevin Lings, Chief Economist - Stanlib Asset Management
One is that inflation expectations go up and the second is that wage demands will go up on the top of that... As people have more money, they go out shopping and before you know it you've got broad-based inflationary pressure.Kevin Lings, Chief Economist - Stanlib Asset Management
While the Reserve Bank is aware that increasing interest rates will hurt an already weak economy, not doing so will probably cause more damage to the consumer in the medium term says Lings.
He points out that the Bank also has to protect the value of the rand.
Listen to Lings' analysis in the audio below:
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