Reserve Bank Governor Lesetja Kganyago says inflation is now becoming more generalised in the local economy. Kganyago told Members of Parliament that the recent increase in core inflation points to second round effects which could result in more workers demanding higher wages, pushing up inflation.
The bank expects core inflation to average 3.9% this year. South Africa has since the onset of the COVID-19 pandemic faced multiple economic issues such as unemployment, rising energy prices and high interest rates.
While the country’s growth remains low and inflation high, Kganyago says commodity prices are starting to moderate. However, risks on the inflation outlook remain on the upside.
“The rise in core inflation is what concerns us because it means that you are starting to see a broader rise in prices, so with the core inflation rising we’re seeing second round effects are starting to manifest themselves and the risks in inflation outlook are tilted to the upside.”
Kganyago expects the second quarter growth to slow from the previous quarter due to the recent floods in KwaZulu-Natal and rolling blackouts among other factors.
“On the domestic front growth is expected to slow down sharply in the near term on account of the KZN floods, load shedding and the impact of the global tightening of the financial and the slowdown of the global economy.”
The SARB says it has seen a sharp rise in global inflation, slower growth and central banks aggressively tightening monetary policy.
Old Mutual Investment Group Chief Economist Johann Els explains some of the reasons for high inflation in South Africa: