Rise in electricity tariff could spike inflation, says Reserve Bank
The Bank assumed a power-price increase of 9.7% for 2018 its in January forecast, which sees inflation accelerating to 4.8% by the end of 2019
SA’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 that Eskom would be allowed to raise electricity prices 9.4% from April 1, taking the total increase to 13.8%. That’s almost 50% more than the assumption the central bank used in its latest projections for 2019, which forecast that inflation would stay below 5% in 2018.
The Reserve Bank assumed a power-price increase of 9.7% for 2018 its in January forecast, which sees inflation accelerating to 4.8% by the end of 2019. The total adjustment that was granted to Eskom could add about 0.3 percentage point the rate, Naidoo said on 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% 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 US 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% in January.