In local political news, South Africa’s newly formed government is set to debate a proposal for Eskom to raise electricity tariffs for 2025 as parliament resumes. According to the Democratic Alliance, the state-owned power utility is requesting as much as a 36% increase next year. Eskom is planning to request the National Energy Regulator of South Africa (NERSA) approve this further tariff increase, and the parliament with debate Eskom’s plan to recover R8 billion in what is being called a ‘make-up tariff’. Through cadre deployment, corruption, and mismanagement, the state’s power utility has amassed exorbitant debts and is now looking to make up for prior shortfalls. For context, Eskom increases electricity tariffs by 18.65% and 12.74% for the 2023/24 and 2024/25 financial years, respectively. Furthermore, electricity prices have approximately tripled over the past 14 years, and this makes the case for the privatisation of the energy sector in South Africa. With parliament back in session, businesses, consumers, and investors will take note of how the Government of National Unity tackles these issues and their ability to pass meaningful reforms to address infrastructure decay when looking more broadly.
This week’s local data card features the July print of the SA Consumer Price Index (CPI). Respondents to Bloomberg’s consensus survey expect the headline figure to drop below the 5.0% mark. The median consensus estimate is currently at 4.8% y/y, compared to the June headline figure of 5.1%. Looking at core inflation, CPI core is anticipated to hold at the South African Reserve Bank’s (SARB) mid-point target of 4.5% y/y. Softer inflation data is expected as economic activity slows under the weight of tight interest rates, an appreciating ZAR and consumer inflation expectations that are more guided toward the central bank’s target. A further decline in the pace of consumer price growth will help open the door for the SARB to start the rate-cutting cycle in September and is widely expected to ease monetary policy by 25 basis points (0.25 percentage points). Furthermore, the SARB’s latest output of its QPM forecasting model provides room for 50 basis points worth of cuts in 2024, with headline inflation expected to hit the mid-point target by year’s end.