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What Causes Inflation in South Africa

According to Stats SA, the primary contributors to the higher annual inflation rate were food and non-alcoholic beverages, housing and utilities, transportation, and miscellaneous goods and services. Food and non-alcoholic drinks climbed by 9.7% year on year, accounting for 1.7 percentage points of the total annual CPI rate.

 

Statistics South Africa has released its latest consumer price index, which shows that annual consumer price inflation has above the upper limit of the Reserve Bank’s goal range for the third month in a row.

In July 2022, inflation was 7.8%, up from 7.4% in June 2022. The July rate remained the highest since May 2009 (8%), when the economy was battling currency depreciation during the global financial crisis.

 

According to Stats SA, the primary contributors to the higher annual inflation rate were food and non-alcoholic beverages, housing and utilities, transportation, and miscellaneous goods and services.

 

Food and non-alcoholic drinks climbed by 9.7% year on year, accounting for 1.7 percentage points of the total annual CPI rate.

 

Housing and utilities climbed by 4.0% year on year, accounting for 1.0 percentage point of the rise. Year on year, transportation increased by 25% and contributed 3.4 percentage points.

 

Miscellaneous goods and services climbed by 3.6% year on year, accounting for 0.5 percentage point of total growth.

 

The annual inflation rate for goods was 11.5% in July, up from 11.0% in June, and 4.2% in July, up from 3.9% in June.

 

Food and fuel prices are driving up inflation, with both recording the highest rates in July. However, the implementation of higher municipal electricity charges, which went into effect in July, also contributed to the higher figure.

 

Bread and cereals, as well as oils and fats, contributed to the month’s 10.1% increase in food inflation, which was driven by the ongoing conflict in Ukraine.

 

However, the whole food market, including fish, meat, vegetables, and confectionery, has seen substantially higher costs and currently falls beyond the Reserve Bank’s inflation target of 3%-6%.

 

Meanwhile, with the major fuel price increase that went into effect in July 2022, fuel inflation reached 56.2%.

 

The increase in fuel prices in July also had an impact on public transportation, with greater fuel costs pushing up ticket prices. Inflation in the category was 22%.

 

What causes inflation and how does it affect the South African economy?

Inflation is caused by three fundamental factors, according to monetary economists: demand, supply, and expectations. Inflation caused by demand: Prices tend to grow quicker when people spend more money. Prices rise more slowly when people are under pressure and spend less.

 

South Africa is facing what kind of inflation?

South Africa’s annual inflation rate fell to 7.6% in August 2022, down from 7.8% in July, but still higher above market predictions of 7.5% and the upper limit of the South African Reserve Bank’s target range of 3%-6%.

 

What can we do to reduce South Africa’s inflation rate?

Budgetary Policy

The government can control inflation by raising taxes (such as income tax and VAT) and cutting spending. This improves the government’s fiscal situation and helps to lower economic demand.

 

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