Reserve Bank report shows inflation stabilising

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South Africa’s inflation is expected to stabilise after peaking at 7.1% in March this year.

Inflation is forecast to average 6% in 2023 and 4.9% in 2024.

This is according to newly-released Reserve Bank Monetary Review Statement Report, released earlier today.

The report also expects global inflation to remain elevated, projected to stay above central bank targets into 2024.

The Reserve Bank Monetary Review Statement shows inflation risks remain firmly on the upside, and structural constraints continue to impact economic growth.

Inflation is expected to stabilise in the latter part of 2023, averaging 6%.

Central banks across the world, including South Africa, increased interest rates in an effort to stem the increase in inflation.

The COVID-19 pandemic together with disruptions to global oil and food supply chains due to Russia’s war in Ukraine, gave rise to the worst inflation surge witnessed in more than a generation.

Reserve Bank Governor Lesetja Kganyago elaborates: “When we met in October 2022, we highlighted the elevated inflation risk confronting both the global and domestic economies and the challenges that come with soaring inflation. Globally you have a public that is intolerant to higher inflation and you have a generation of people who don’t know what it is like to live with inflation higher than 2%.”

The report further shows economic growth has continued to decline because of power outages since the third quarter of last year. This, alongside under-performing rail and port infrastructure.

The Reserve Bank forecast GDP growth for 2023 at 0.2%, slightly changed from 0.3% projected at the January MPC meeting.

Load shedding is now expected to deduct as much as two percentage points from growth in 2023, double the impact estimated at the time of the October 2022 Monetary Policy Review.

Lead economist at the Reserve Bank Witness Simbanegavi says, “We already this year at 108 days of load shedding, which is probably more than 60% of our load shedding last year and our expectation is that we are going to experience something like 250 days of load shedding this year. The effect of this load shedding is that estimates show that in 2022 the GDP actually could have been closer to 3% had we not had load shedding because we believe load shedding shaved off point seven percentage points from GDP last year. But in 2023 its actually more worrisome because we are actually projecting two percentage points drop in GDP just because of load shedding.”

Despite pressures on household balance sheets, spending is still expected to contribute positively to growth over the medium term.

Household consumption is expected to rise above 0.6% and 0.9% in 2023.

Meanwhile, food prices are expected to continue rising.

“Global food prices globally have declined but food prices in South Africa have declined. One part of it is the exchange rate and because of the exchange rate when you exchange from dollar to rand and the rand is weaker then it happens that the price is not coming down as fast if it comes down at all. The impact of load shedding has resulted in milk producers, poultry producers to lose and dump products and those that lost products means they experienced costs that they didn’t expect and will be forced to recover those costs or be pushed out of business.”

The Reserve Bank is calling for the reduction of administrative prices as this will have a meaningful impact the on overall inflation.

It is also calling for the reforming of core infrastructure sectors together with the stabilisation of public debt.