South Africa's rising inflation has become a serious concern for both real incomes and consumption, with food prices and transport costs showing upwards trends, reserve bank deputy governor Kuben Naidoo said on Friday.
Naidoo said in a statement that the central bank was dealing “with a drastically changing economic environment” that had already hiked interest rates by 75 basis points and a 20 percent increase for the repo rate.
If this trend continued, the rising cost of living could lead to social unrest, he warned.
He noted that the three-and-a-half percent inflation target was artificially low, induced by the Covid-19 pandemic.
“But we thought we were in a pretty good space, we could act slowly and gradually, as the economy recovered,” Naidoo said.
He added: “But the war in Ukraine has changed that. And also, inflation has changed that equation and we’ve had to hike a little bit faster than probably would otherwise have done.”
The deputy governor said higher interest rates were also likely to weigh on consumers, with economists forecasting a further one percentage point repo rate increase this year, the equivalent of a 25 basis point hike in every Reserve Bank Monetary Policy Committee meeting until the end of the year.
“We started normalising interest rates in November. Our view is that we will want to normalise gradually over a two- to three-year period,” Naidoo said.