South Africa should not shift the blame for inflation – Reserve Bank governor

South African Reserve Bank governor Lesetja Kganyago said South Africa tends to ignore domestic factors that drive inflation and shift the blame to external factors.

Kganyago told 702’s Clement Manyathela that he sometimes finds the discourse around inflation in South Africa disingenuous because “we like blame-shifting”.

The country often attributes its high inflation to factors like the oil price, global food prices, weakened exchange rate, and foreign inflation.

While these factors play a role, Kganyago said, “We do not talk about the domestic factors that actually drive inflation which we had been highlighting so repeatedly in the South African Reserve Bank.”

The governor identified the following two domestic factors largely responsible for driving inflation: 

  • Load-shedding
  • Administered prices and utility tariffs

“Those are our idiosyncrasies that we have to confront to arrest the inflation monster.”

South African Reserve Bank Building


Kganyago said load-shedding is the first and the most prominent factor, which the SARB initially thought was only impacting economic growth because businesses could not produce during power outages.

“We estimated that load-shedding had shaved two full percentage points of growth this year. We now expect the South African economy to grow by 0.4% this year, while it could have grown by 2.3% if it was not for load-shedding.”

He said something the SARB had struggled to “come to grips with” was the impact of load-shedding on inflation.

In the past, the Reserve Bank thought the impact was only through the higher electricity prices resulting from load-shedding.

“But we have now seen that load-shedding itself has added about half a percentage point on inflation. So we expect inflation this year to average 6%. If it was not for load-shedding, we would have talked about 5.5% for the year.”

The inflationary effect of load-shedding comes through various channels, including the country’s food chain. Food inflation has been one of the biggest drivers of South Africa’s high inflation over the past year, soaring to a 14-year high in 2023.

Tariffs and administered prices

Another domestic inflationary factor – linked to load-shedding – is the country’s electricity tariffs. Kganyago also mentioned the inflationary effect of water tariffs, which have been rising faster than inflation.

The governor said these tariffs have seen South Africans “paying more for something that they are having less of”.

Kganyago also mentioned municipal property rates, which are sometimes raised by 3% or 4% because the government has revalued properties higher. 

“It baffles me when one looks at some of the valuations municipalities are coming up within an environment where the economy is weak, and interest rates are high,” he said.

This issue surrounding municipal prices is something the SARB has brought up before in its May Monetary Policy Review.

The review explained how the government’s increased prices for administered services at a rate far above inflation over the last decade and a lack of delivery drive higher, forcing the Reserve Bank to raise interest rates.

Aside from the unusually large supply-demand imbalances caused by sudden restrictions and relaxations on economic activity, the Reserve Bank singled out government-administered price increases as a driving force behind inflation. 

Administered prices have outstripped inflation over the last decade. Electricity, water, fuel, and property costs have skyrocketed. 

From January 2009 to December 2022, the price of electricity rose six-fold, water four-fold, and fuel three-fold.

The Consumer Price Index (CPI) over the same period only doubled. This data does not even consider the implementation of an 18.7% price increase for electricity in 2023/2024. 

The Reserve Bank said such increases are “costly to the economy” as they drive inflation and complicate its ability to maintain price stability. 

Many of these administered prices are for goods and services that are universal economic inputs. Thus, they raise the cost base of the economy and make everything more expensive. 

The SARB also lamented that “many municipalities do not employ any discernible framework to determine the level of increases in tariffs”. 

Rate increases are seemingly made on a whim without consideration of the effects of such increases. This “suggests substantial deficiencies in the current regulatory framework”. 

*Headline image source: Ryan Rayburn/IMF Photo


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