Economists warn that record diesel price hikes may exert upward pressure on inflation, potentially affecting the interest rate outlook.
However, there’s a silver lining that comes with this dark cloud of pricey diesel: despite the uptick in cost, the prevailing forecast suggests that interest rates are likely to remain unchanged for the remainder of the year.
The expectation that interest rates will stay steady is based on the belief that the impact of increased fuel costs may not be as substantial as anticipated. Phew!
Additionally, it is anticipated that consumer prices will remain relatively lower in 2023 and 2024 compared to 2022 and the first half of 2023, which would help keep interest rates stable.
Consumer price inflation (CPI), as reported by Stats SA, decreased from 5.3% in June to 4.7% in July, marking the lowest reading since August 2022. Nevertheless, the significant petrol and diesel price hike that occurred on September 6th has naturally caused South African’s to become nervous.
Investec Chief Economist Annabel Bishop predicts that inflation is likely to rise and remain above 5.0% for the remainder of 2023. However, she explained that this does not signify a complete shift, as the rate is expected to return to the South African Reserve Bank’s midpoint target of 4.5% for most of 2024, with the potential to drop to 4.0% by the end of the following year.
Consequently, Bishop suggests that no interest rate hikes are factored in for the rest of 2023, with the market’s forward rate already incorporating a rate cut beginning in March 2024.
“We continue to believe the interest rate hike cycle in SA has ended, and that next year will see some interest rate cuts. The risk to inflation both this year and next year is, however, likely to be to the upside in South Africa.”
Regarding the impact of fuel prices on inflation, Bishop points out that petrol prices account for 3.5% of the Consumer Price Index (CPI) basket, while diesel prices make up only 1.4%. Therefore, while the lower weighting of the diesel component may have a moderating effect, it will still exert upward pressure on the September CPI outcome.
Food prices, on the other hand, make up the largest individual component of the CPI basket, and are expected to have a minimal impact in August. Unfortunately, the weakness of the Rand offsets this advantage. A veritable rollercoaster economy.
While the situation will continue to be closely monitored to assess its impact on South Africa’s economic landscape, it’s important to know all the ins and out outs of these pesky percentages. This is especially important if you have a vision for the future that involves goals for your own personal and professional economic growth. That’s why we put our trust in Consequence Wealth Management, a team of professionals who’ve made deciphering economic codes for customers their life’s work.
Speaking from experience, it’s easy to get overwhelmed when confronting rows of investment numbers. Consequence Wealth Management’s expertise in investment management makes all that anxiety disappear through their use of carefully selected fund managers with proven track records, reflecting the best market views.
Instead of relying on sparse info from SA’s CPI reports that can sometimes read as complete gibberish, we suggest looking for ways to ensure ongoing wealth for the long haul by relying of the pros at Consequence Wealth.
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