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Stagflation – SA consumer inflation accelerates to new 13-year high of 7.8% in July

Stagflation – SA consumer inflation accelerates to new 13-year high of 7.8% in July

South African consumer inflation accelerated to a new 13-year high of 7.8% in July from 7.4% in June, underscoring the rising cost of living that prompted Wednesday’s planned stay-away by trade unions. The usual suspects of food, fuel and transport costs were the main drivers. 

Wednesday’s attempt at a national shutdown by trade union federations Cosatu and Saftu appears to have shut little down, but the key reason behind the planned protests – the surging cost of living – was thrown into sharp relief by data which showed the consumer price index (CPI) racing to a new 13-year high of 7.8% in July from 7.4% in June. 

“Consumers are feeling the pinch, particularly for non-durable goods — those items bought most frequently, such as food, drink, electricity, fuels, and medicine. Annual inflation for non-durable goods is in double-digit territory, at 14.4%. This is much higher than the rates recorded for durable goods (4.8%) and services (4.2%),” Statistics South Africa (Stats SA) said in a statement on Wednesday.

Transport costs increased 25% in the year to July while food inflation for consumers was 10.1% compared to 9.0% in June. In April, food inflation was running at 6.3%.

“Municipalities increase service charges in July every year. Electricity tariffs increased on average by 7.5%, equivalent to the 7.5% benchmark approved by the National Energy Regulator of South Africa (Nersa). This increase is lower than last year’s rise of 13.8% but higher than the 2020 increase of 6.3%,” Stats SA said.

“Together with the rise in electricity tariffs, consumers also had to deal with further fuel price increases. Transport costs were up by 4.8% between June and July, with fuel rising by 9.4%. Fuel is 56.2% more expensive than it was twelve months ago, with the price of a litre of inland 95-octane petrol rising from R17.39 in July 2021 to R26.74 in July 2022. Those relying on public transport didn’t escape the pain. Taxi fares jumped in July too, rising by 9.0% from June and taking the annual rate to 16.4%,” Stats SA said. 

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Inflation is a global phenomenon at the moment, spurred by a range of factors including Russia’s invasion of Ukraine as both countries are major grain producers. 

July’s inflation read will not be lost on the South African Reserve Bank (Sarb), which has hiked its key repo rate by 200 basis points since November of last year from record lows in a bid to cool scorching prices. 

The Sarb’s Monetary Policy Committee’s (MPC) next meeting is scheduled for September and it will almost certainly hike again as CPI is speeding past its 3% to 6% target range. This will squeeze hard-pressed South African consumers with debt burdens even further and weigh down a fragile economic recovery. But the alternative of run-away inflation would inflict even more pain, especially on the poor and working class. 

The conundrum on this front is that South African inflation is being stoked by outside forces and rising administrative costs, not demand pressures. But rising rates are needed to shore up the rand, which is currently near 22-month lows of around 17/dlr. If the rand was to really tank, import costs would potentially hurdle consumer inflation into double digits. 

Against the backdrop of an unemployment rate of 33.9% and with an economy that is widely expected to have contracted in the April to June quarter, South Africa is now in the grip of a spiral into “stagflation”. This, in a nutshell, means the economy is screwed. DM/BM


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