SIMON BROWN: I’m chatting now with Dr Chris Harmse from CH Economics. Chris, I at all times recognize the early morning. The client value index (CPI) information got here out domestically yesterday – 7.2% inflation domestically. It seems sticky, it seems stuck. Is it simply form of the meals, the gas, Eskom – or is there maybe one thing else that I’m fully lacking right here?
Dr CHRIS HARMSE: Morning, Simon. No, I believe you’re 100% appropriate. Those three objects dominate the inflation basket. If you simply look at the contribution of them to the entire of the brand new 7.2% charge, meals contributes 2.1%, transport 2%, after which in fact family bills, which would come with in fact your electrical energy, and so on additionally around that, so it contributes 1%. So 5.1% of the 7.2% [is contributed by] solely these three objects.
The others are very regular and in addition coming down. Things like well being, recreation and tradition are additionally very low. Things like communication are damaging at this stage. Restaurants and accommodations additionally. I see that lodge charges are actually decrease yr on yr; I believe it’s simply to get prospects. But it’s sticky.
And due to the worldwide scenario around meals, the alternate charge of the rand, and everyone knows concerning the oil [price] – though petrol costs are beginning to come down – and everyone knows now concerning the new shocker of the [18.65% Eskom tariff hike]. So in case you look at prospects, they’re sticky. [They are] not coming down like what is going on within the US.
The US went far larger than South Africa. That went as much as about 9%, whereas we solely touched on about 7.8%, 7.9%. And now the US is already again on what, [6.5%] and coming down shortly. So [inflation] is sticky. And these three objects are dominating the entire basket with the worrying impact of 12.4% on meals, which is staying there month on month.
Listen: Nersa’s Nhlanhla Gumede on components concerned in arriving at Eskom’s accredited tariff enhance
SIMON BROWN: That was it, the family. Eskom is just not coming down, as you talked about. We’ve acquired one other big [electricity tariff] enhance coming there. Transport – perhaps. We had a pleasant [fuel price] lower in January, though the rand and gas are past our management. Food inflation, as you say, is staying larger. I chatted with Wandile Sihlobo from Agbiz final week, and he was saying it would begin edging down. But it does counsel to me that getting our inflation again into that 3% to six% band goes to take a bit extra time.
And then with a [Sarb] MPC assembly subsequent week the query is just not ‘Are we going to have an [interest] rate increase?’ It nearly turns into ‘Is it going to be a half or a quarter?’
Listen/learn: [TOP STORY] Good rains augur nicely for SA’s 2023 agriculture season
Dr CHRIS HARMSE: Yes, 100%. So these are the 2 huge questions. The primary is on transport. I nonetheless imagine [that on] transport three or 4 months in the past the year-on-year enhance right here was around 30%, and it’s now coming down; it’s now 13.9% yr on yr.
SIMON BROWN: So we’re profitable.
Dr CHRIS HARMSE: So the essential results will begin to kick in. It’s a query of a month or two [for] the essential results to begin to kick in. And now particularly diesel has gone down by about R4/litre over the past two months, and we anticipate this at the start of February to go down by about at least one other 50 cents.
Then it will depend on what the [finance] minister goes to do in his price range. I believe this yr he’s positively going to extend the tax on gas. He spared us final yr. He’s positively not going to [spare us] this yr. So that additionally shall be contributing.
And then in fact that huge [18.65%] in April will enhance the inflation charge by itself by 0.6%. So this factor goes to stay [at] around 7%. Maybe it is going to begin to come down, given the bottom results, to about 6% within the subsequent three to 4 months.
The drawback [for] the Monetary Policy Committee is just not inflation, it’s not [the] inflation basket. They may have saved the speed at the present stage for the final two conferences at least. The drawback is the rand.
If the governor is just not going to extend charges, [and] if the US additionally will increase, then sadly two issues will occur right here. You’ll have an outflow of capital, and the rand can depreciate critically – and everyone knows it’s a harmful cycle once more. Then the whole lot else will go up once more, and the inflation charge will go up once more.
So he has this predicament. We had been [ahead of] of the cycle. We began to extend our charges lengthy earlier than the US did. The query is now can we be a bit [ahead of] the cycle, beginning to lower charges earlier than the US does? Because my projections and my calculations – and there are plenty of different economists feeling the identical – are that the speed of inflation shall be as little as 4% and even decrease by the fourth quarter of this yr. So should the Reserve Bank already begin on the cycle to lower? That’s the predicament.
Now we all know that the Federal Reserve is assembly at the top of the month – 31 January to 1 February – and the projection now could be 0.5% for the US, so we could observe, additionally with 0.5%.
SIMON BROWN: Yes, following the US as a result of meals, transport and family are usually not demand-driven, however preserving monitor. As you stated, we’re defending our foreign money, and in the end we’re defending the long term if our foreign money collapses.
Dr Chris Harmse of CH Economics, I at all times recognize the insights.
Listen to the total MoneywebNOW podcast each weekday morning right here.
