South Africa Central Bank Sees New Power Prices Adding to Inflation

(Bloomberg) -- South Africa’s electricity tariff increases could push the inflation rate up by 0.75 percentage point, Reserve Bank Deputy Governor Kuben Naidoo said.

The nation’s energy regulator said last week Eskom Holdings SOC Ltd. can raise electricity prices by 9.4 percent from April 1, taking the total increase to 13.8 percent. That’s almost 50 percent more than the assumption the central bank used in its latest projections for 2019, which forecast inflation will stay below 5 percent this year.

The Reserve Bank assumed a power-price increase of 9.7 percent for this year its in January forecast, which sees inflation accelerating to 4.8 percent by the end of the year. The total adjustment that was granted to Eskom could add about 0.3 percentage point to that, Naidoo said Wednesday at a conference in Cape Town.

The Reserve Bank increased its key interest rate for the first time in more than two years in November, even as the economy had just come through a recession and hasn’t expanded at more than 2 percent annually since 2013. It kept borrowing costs on hold in January and trimmed its projection for policy tightening as it lowered its inflation forecast.

While the central bank doesn’t position itself as being in a hiking or softening cycle, “it is no secret that the U.S. is now in a softer interest-rate cycle and this will lessen pressure on the rand,” Naidoo said.

Inflation slowed to a 10-month low of 4 percent in January.

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