JOHANNESBURG - South African Reserve Bank (SARB) Governor Lesetja Kganyago previously raised concerns about second-round inflationary effects stemming from the recent Middle East oil shock.
According to the Reserve Bank, these shocks can feed through from oil prices to food prices before filtering into core inflation.
As a result, consumers are forced to dig deeper into their pockets. However, the impact extends beyond the prices of goods.
Chief Economist at Citi South Africa, Gina Schoeman, said the main concern is how these higher costs also filter through to the prices consumers pay for services.
According to Schoeman, services inflation accounts for roughly half of the consumer basket. In January, it increased to 5.2 percent from 4.2 percent.
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Services inflation covers sectors such as vehicle repairs, medical care, financial services, hospitality, travel, entertainment and even personal care services such as haircuts.
Schoeman said services inflation is significant because it tends to be “sticky”. Once prices increase, they typically take much longer to come down.
Turning to goods inflation, Schoeman said food inflation eased in June but warned that higher fertiliser costs and the impact of El Niño could push inflation higher in the months ahead.
She expects the SARB to raise interest rates by 25 basis points.
Schoeman said such a move would not be aimed at throttling the economy but rather at containing inflation, which disproportionately affects lower- and middle-income households.