Vivienne Taberer, Investment Director at Ninety One
This is a big week for South Africa. The consensus forecast is for Wednesday’s CPI print to come in at 4%, a sharp jump from March’s 3.1%, as higher fuel prices filter through for the first time alongside medical aid increases. Market consensus has now moved in line with Ninety One’s expectations, and the number will put the South African Reserve Bank in an uncomfortable position: at 4%, inflation is nudging up against the top of the SARB’s revised target of 3% with a 1% tolerance band, and the Bank will have to decide what that means for rates.
The central question is whether this spike is transitory or the start of something more sustained. The wildcard is the Strait of Hormuz. Global oil supply disruptions of this scale don’t resolve quickly; even if a deal emerges, supply takes time to recover. With fuel restrictions already affecting some 80 countries globally, demand destruction is underway. But South Africa, like many emerging markets, has limited room to absorb higher oil prices for long before second-round effects kick in.
When SARB’s models build in this kind of inflation shock, they will start to incorporate some second-round effects, and the Bank will need to react. The debate is no longer whether it hikes, but by how much and for how long. The jury is still out on whether we’re looking at a couple of measured adjustments, or the beginning of a more aggressive hiking cycle. A wait-and-see approach is understandable given the uncertainty, but the window for patience is narrowing.
Core CPI, which strips out food and energy, is expected to show a more modest move, rising from around 3.2% to 3.5%. The headline number will do most of the heavy lifting this month, driven by the fuel kicker and medical aid, with public transport increases adding further pressure. This is not purely a South African story: the same dynamics are playing out globally. The good news is that South Africa today is better positioned to absorb this shock relative to many other emerging markets and its own recent history.
ENDS
