21 Jul 2022
According to Statistics South Africa, inflation jumped to 7,4% in June from 6,5% in May, mainly driven by rising transport and food prices. The 7.4% June rate is the highest reading since May 2009.
saisi is concerned that this trajectory does not bode well for hard-pressed businesses in the basic iron and steel sector, which continue to face headwinds amid low levels of domestic apparent steel consumption demand and increasing operational costs (including labor and logistic costs).
In particular, Fuel prices were up by 45,3% in June, representing the largest annual increase for fuel since the current CPI series began in 2009. An inflationary environment will definitely add to the pressure local producers face, given its direct impact on consumer demand for goods. The high fuel price invariably adds to businesses’ logistics costs, and this, in turn, negatively impacts the cost of doing business.
The increase in inflationary pressure is a massive challenge for producers who are already battling to improve operational efficiency and margins. The official inflation data is now in the upper band of the South African Reserve Bank inflation target of 3% – 6%. The SARB’s announcement to hike the interest rate by 75 basis points will not help reduce borrowing costs, thus derailing the recovery in the domestic market.