Persistent supply constraints and robust global demand growth are expected to drive up inflation, according to the Reserve Bank’s Monetary Policy Review which held a virtual media briefing on Tuesday.
The Bank says while inflation risks remain high in the domestic economy this year, economic growth is expected to be stronger than previously forecast, due to stronger commodity export prices.
As the geopolitical tensions in Eastern Europe remain elevated, the Reserve Bank anticipates that higher input prices and disruptions to global trade have increased downside risks to global growth and inflation. The bank now expects global growth to decelerate sharply to 3.7% in 2022, down from an estimated 6.4% last year.
“Progress towards a more stable economic condition remains under threat. Price pressures have intensified as demand has recovered quickly while supply chains have been slower to recover. The war in Ukraine has exacerbated global price inflation while dragging down global growth. Price pressures are also evident in South Africa,” says Reserve Bank Governor Lesetja Kganyago.
The Reserve Bank expects economic growth in the first quarter of this year to reach 0.8%, while growth for the full year has been revised up to 2%. Lead Economist at the Reserve Bank, Witness Sambanegavi says although economic growth is expected to continue, the slow rate of recovery has had an adverse impact on jobs.
“Three sectors have actually recovered beyond their 2019 output, and these are agriculture finance, community, and social services. But we also see that some sectors especially construction, transport and trade remain far below their 2019 output. The difference in recovery is of concern, particularly given that some of these sectors are very labour intensive. So, their slow recovery is impeding on economic wide recovery and jobs.”
The bank expects the headline consumer price inflation to average 5.8% this year underpinned by rising fuel prices and elevated food inflation.
“Fuel price inflation has aggressively increased. If you look at November, January, and March and (it is) substantially higher now. But it is expected to come down substantially in 2023, partly due to base effects, and partly because we do expect oil prices to moderate substantially in 2023.”
The Reserve Bank says higher commodity prices have boosted the current account surplus and provided cheap financing for government spending.