Inflation expected to rise steadily due to electricity tariff hikes

Wednesday, October 30, 2019

Headline inflation is expected to increase gradually in 2019 with the Reserve Bank maintaining its inflation targeting policy of below 6%, the National Treasury said on Wednesday.

“Inflation is forecast to increase gradually as a result of electricity tariff hikes, and higher meat and grain prices.

“Administered price inflation remains high, with electricity and water producer price inflation reaching 14.6% in July 2019,” the National Treasury said.

Finance Minister Tito Mboweni tabled his medium-term budget in the National Assembly, on Wednesday afternoon.

“In September, headline consumer price inflation was 4.1%. Lower inflation is good for everyone, particularly for the poor and the working class.

“In short, it is a mixed picture with some positive signs.”

Consumers spending less on non-essential items due to rising unemployment, fuel hikes

According to the National Treasury’s budget review, consumption expenditure grew by 1% in the first half of 2019 compared with the corresponding period of 2018.

“Although household spending remains the main support for growth, spending on non-essential items has fallen dramatically due to rising unemployment, successive fuel price hikes and tax increases.

“Retailers are responding by keeping prices low and margins tight.”

The National Treasury said a mild acceleration in consumption is forecast over the next three years as employment and income growth are expected to recover only gradually.

“Inflation pressures have been subdued in 2019, with inflation averaging 4.3% from January to August, mainly due to weak demand.

“Within its flexible inflation-targeting mandate, the Reserve Bank is focused on anchoring inflation expectations at the midpoint of the 3 to 6% target band.

“The repurchase (repo) rate stands at 6.5%, after a 0.25 percentage point cut in July to support growth.

“Reserve Bank modelling suggests a further 0.25 percentage point cut in rates before the end of 2019.

“The Reserve Bank has expressed concerns about risks of global financial market disruptions, as well as the effect that a loss of confidence could have on the rand and inflation.” –