South African urban households saw no movement in electricity and fuel costs between March and April, official data showed on Wednesday, but the central bank raised its interest rate to a record to maintain stubbornly high consumer inflation.
Household energy price inflation in urban areas, under the consumer price index (CPI) division of housing and utilities, registered zero percent growth over the past two months, it reported the department of statistics (Stats SA). However, it stood at 8.2% compared to April 2022.
Meanwhile, transport fuel price inflation hit its lowest level since March 2021 at an annual rate of five percent, pushing the transport CPI division into a ninth straight month of disinflation in April 2023 to 7.6 percent.
Housing and utilities contributed one percentage point to the annual change in the CPI in April, the same as in March.
South Africa’s CPI, including the volatile price of food and energy, or headline CPI, rose 0.4% month-on-month and 6.8% year-on-year in urban areas. Annual headline CPI inflation has exceeded the target range of three to six percent since May 2022, a year when food and energy prices soared after the oil exporter’s invasion and gas from Russia to major grain producer Ukraine, which disrupted food and energy supplies.
The global benchmark price of Brent for crude oil reached its highest annual average in 2022 at $100.93 a barrel, while the international standard Henry Hub for natural gas averaged 6.45 dollars per million British thermal units, the largest US distribution center since 2008, according to US Energy Information. administration
Meanwhile, the Food and Agriculture Organization of the United Nations food price index reached an all-time high last year.
South Africa’s headline CPI, including rural areas, rose 0.5% between April and March and 7.1% from April 2022.
Excluding food and energy, the urban CPI rose 0.5% month-on-month and 5.3% year-on-year.
“The main contributors to the annual inflation rate of 6.8% were food and non-alcoholic beverages; housing and public services; transportation; and miscellaneous goods and services,” Stats SA said in its online newsletter. “Food and non-alcoholic beverages increased by 13.9% year-on-year and contributed 2.4 percentage points to the total CPI annual rate of 6.8%.”
power crisis
The central bank had predicted that the country’s frequent blackouts would help boost inflation in 2023. South Africa’s main electricity supplier has indicated more rotating blackouts, known locally as blackouts, over the coming winter to ensure operations sustained
Most of the time in the winter starting in June, 5,000 megawatts (MW) are likely to be taken off the grid, which is the fifth stage of Eskom Holdings SOC Ltd.’s offloading policy, the company said on 18 of May
“If unplanned outages are average [sic] at 18,000MW, a discharge could be required every day and could be implemented up to stage 8,” Eskom said in a press release. Stage eight could mean customers experiencing outages several times throughout the day for 12 hours
Eskom serves about 95 percent of South Africa’s electricity needs, according to the Department of Public Enterprises.
The South African Reserve Bank (SARB), the nation’s central bank, said in a policy review published in April that it is expected to “add materially to headline inflation (0.5 percentage points in 2023) as the costs associated with back-up energy solutions are passed on to consumers, while additional pressures emanate from the sharp rise in electricity prices for the 2023/24 cycle.” He said his calculations show that load shedding had increased the CPI by 0.6 percent in 2022 and is poised to increase the 2023 CPI by a further 1.1 percent.
Eskom’s reliance on diesel-powered open-cycle gas turbines during off-loading would increase energy costs for consumers, he said.
“Companies have turned to costly alternative energy sources such as solar or backup generators to mitigate production downtime due to offload,” the bank said.
Tighter monetary policy
To rein in inflation to its target range of three to six percent, the SARB has raised its interest rate by 50 basis points to 8.25 percent effective Friday, the highest since 2009. It has increased the rate of ‘interest from the end of 2021.
It revised its forecast for South Africa’s headline inflation in 2023 to 6.2 percent, citing more expensive food and commodities in the near term.
“Headline inflation for 2024 also rises to 5.1%, before moderating to 4.5% in 2025 due to lower food and fuel inflation,” the central bank governor said Lesetja Kganyago in a statement to the SARB media.
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