Statistics South Africa will release consumer price index (CPI) inflation data for March on Wednesday morning. The announcement of domestic inflation comes as the war-induced oil price shock has caused global inflation to appear progressively non-transient, with prices in advanced economies reaching unexpected highs in recent months.
In a research note, investec economist Lara Hodes said CPI is expected to have increased modestly in March to 5.8% yoy, from 5.7% in February. Nedbank economists hence forecast that inflation would reach 5.8%, which is well above the Reserve Bank’s average target of 4.5%.
High inflation, Hodes noted, is expected to be driven primarily by further increases in fuel and food prices.
Global inflation has surprised to the upside in recent months, contrary to expectations that high prices would be transient.
High prices have become a stubborn feature of the global recovery from the economic onslaught of Covid-19, as persistent supply constraints and robust demand growth continue to give a strong boost to inflation.
Last week, the Bureau of Labor Statistics in the WE revealed that inflation in the United States rose to 8.5% in March, marking the highest levels since December 1981. Inflation data came a week after the Federal Market Committee open very hawkish minutes they have been released.
The committee indicated The Russian invasion of Ukraine as a major source of ongoing economic uncertainty. The conflict, the minutes read, “ran the risk of further exacerbating supply chain disruptions and exerting further upward pressure on inflation by increasing the prices of energy, food and other key commodities.”
Earlier this month, Bank for International Settlements (BIS) Director General Agustín Carstens warned that the world “could be on the verge of a new inflationary era.” The BIS is an international financial institution owned by central banks with a mandate to promote international monetary and financial cooperation.
In a speech given at the International Center for Monetary and Banking Studies in Geneva, Carstens noted that nearly 60% of advanced economies currently have year-on-year inflation of more than 5%, more than three percentage points above their target. typical inflation. “The forces behind high inflation may persist for some time,” Carstens said.
“New pressures are emerging, not least from the labor market, as workers seek to offset inflation-induced reductions in real income. And the structural factors that have kept inflation low over the last few decades could decrease as globalization pulls back, “she added.
In South Africa, inflation is expected to remain above the Reserve Bank’s target for the remainder of the year. According to the bank’s monetary policy review, released last week, main CPI inflation is forecast at 5.8% in 2022, well above the 4.9% forecast in January of this year.
Inflation is expected to exceed the upper bound of the Reserve Bank’s 3% to 6% target range in the second quarter of this year and is expected to return to the target midpoint in 2023.
Looking ahead, the review noted, “domestic inflation could increase surprisingly if hostilities in Ukraine continue to escalate or if oil and gas supplies are further limited.”
“The upward drift in inflation expectations and significantly higher producer prices further skew the risk of inflation to the upside,” the review added.
“Greater expected wage growth, a slightly weaker rand and further increases in global commodity prices could put further upward pressure on headline inflation.”