South Africa: Cost of living crisis raises risk of social friction

By Xolisa Phillip, in Johannesburg

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Posted on June 30, 2022 13:23

IMF and World Bank hold Annual Meetings in Washington
South Africa’s Reserve Bank Governor Lesetja Kganyago, who is also International Monetary Finance Committee (IMFC) chairman, makes remarks as IMF Managing Director Kristalina Georgieva listens during a closing press conference for the IMFC, during the IMF and World Bank’s 2019 Annual Meetings of finance ministers and bank governors, in Washington, U.S., October 19, 2019. REUTERS/Mike Theiler

The rapid rise in the cost of essentials will heighten social friction in South Africa while increasing the probability of an interest rate hike when the central bank’s monetary policy committee (MPC) meets in July, analysts predict.

The latest figures from Statistics South Africa (Stats SA) show that annual consumer price inflation (CPI) increased to 6.5% in May from 5.9% in April. That is the highest recording since January 2017 and the first time in five years the reading has breached the central bank’s 3-6% inflation target band.

Stats SA will release the June CPI figures on 20 July, a day before the South African Reserve Bank’s (SARB’s) MPC is scheduled to meet to announce its next interest rates decision.

Zahabia Gupta, S&P Global Ratings’ primary sovereign analyst on South Africa; Martyn Davies, MD of emerging markets and Africa at Deloitte; and Christie Viljoen, a senior manager and economist at PwC, forecast another 50 basis points hike to the SARB’s key policy rate.

Says S&P’s Gupta: “While the cost of essentials has increased, unemployment is higher than before the pandemic. Labour-intensive sectors, such

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