South Africa hit by an electricity price disaster
South Africa’s electricity prices have consistently increased above the rate of inflation since 2008, pushing headline inflation higher and forcing the Reserve Bank to keep interest rates elevated.
Inflation cooled substantially throughout 2024, dropping below 3% in October and November as food and energy price increases slowed.
Momentum Investments chief economist Sanisha Packirisamy explained that this does give the Reserve Bank room to continue to cut interest rates.
The bank has so far cut rates by a cumulative 50 basis points since September 2024, taking a cautious approach to the cutting cycle.
While this approach has been criticised, Packirisamy pointed out that it is warranted as an aggressive and deep-cutting cycle could reignite inflation.
She explained that there were severe structural drivers of inflation that continued to put upward pressure on prices.
Chief among these is electricity tariffs, which have consistently risen above the headline inflation rate for the past 16 years.
According to calculations from Momentum Investments, electricity prices have risen by over 600% since January 2008. This is compared to a headline inflation rate of 139% over the same period.
Higher electricity tariffs have been combined with increases to other administered services such as municipal charges, water tariffs, and fuel prices.
These price changes have a particular influence on headline inflation as many of these services are universal inputs in the economy. Thus, when the price for these services rises, the entire cost base of the economy rises.
It also negatively impacts economic growth as it raises the cost of doing business, which is ultimately passed on to the consumer as companies cannot absorb such large increases.
The graph below shows how sharply electricity tariffs have risen in the past 16 years compared to other administered prices and headline inflation.

Consistent above-inflation increases in the price of electricity has not only been a structural driver of inflation in recent years, but is now beginning to impact Eskom’s sales.
Eskom’s sales have steadily declined over the past decade, putting pressure on the utility to raise prices to ensure its revenue growth can cover increased operating costs.
This can result in a death spiral for the utility, where its raised prices force customers to find alternative energy sources.
Over the past few years, companies and households have invested heavily in alternative sources of energy to Eskom to mitigate the impact of elevated load-shedding levels.
The company has seemingly solved the load-shedding crisis in 2024, with power cuts implemented towards the end of March.
However, companies and households are still looking to reduce their electricity usage from Eskom.
This is largely due to the utility’s repeated above-inflation increases in electricity tariffs in South Africa over the past decade.
The head of responsible investing at Old Mutual, Tanya Mongwe, explained how the declining usage of Eskom’s electricity forces it to raise prices and, in turn, encourages people to reduce their reliance on the utility.
Mongwe said some of Eskom’s biggest customers have significantly reduced their reliance on the utility for electricity, with mining companies leading the way.
As these companies reduce the electricity consumption generated by Eskom, the utility’s revenue is negatively impacted.
Eskom can only try to recover this revenue by hiking prices. This trend has exacerbated the utility’s need to raise tariffs to cover its increased operating costs.
Mongwe also said the trend will likely accelerate as the government moves towards creating an open market for electricity by mid-2026, where Eskom will be forced to compete against other generation sources for sales.
In the short term, it has already impacted Eskom’s sales and forced the company to apply for further increases in the above inflation in the coming three years.
This is shown in the graphs below, courtesy of Mongwe and Old Mutual.


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