Tariff increase granted to Eskom adds to inflationary pressures

Date: Mar 11, 2019

The above-inflation tariff increases granted to embattled Eskom and the surge in fuel prices announced this week will add to the inflationary pressures, warned economists on Friday.

National Energy Regulator (Nersa) this week rejected Eskom’s request for a 17 percent hike in power tariffs this year, dealing a further blow to the struggling firm’s finances. Rather than the double-digit increases requested, power tariffs will only rise by 9.4 percent in 2019, 8.1 percent in 2020 and 5.2 percent in 2021.

Annabel Bishop, the chief economist at Investec said higher inflation is likely this year from the second quarter, with Nersa’s decision lifting the trajectory along with higher rand oil prices.

“Electricity tariff increases have a meaningful impact on inflation, with a weighting of 3.8 percent in the consumer price index (CPI) for electricity prices,” Bishop said.

“Thursday’s 9.4 percent increase in Eskom electricity tariffs for 2019 approved by Nersa is above the inflation rate and will place upward pressure on CPI inflation in SA from July.”

The South African Reserve Bank (Sarb) at its January Monetary Policy Committee meeting said the overall risks to the inflation outlook were assessed to be moderately on the upside.

The central bank flagged administered prices such as electricity and water tariffs, rising domestic food prices in the outer years, changing investor sentiment towards emerging markets, moderation in global growth and volatile international oil prices as posing the biggest risks.

Peter Attard Montalto, the head of capital markets research at Intellidex, said that the tariffs hike would add upside risks in the first year to CPI forecasts, including that of the Sarb, but that there would be a minimal real impact on policy.

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