The ongoing conflict in the Middle East has sent shockwaves through the South African economy, driving up fuel prices and the cost of living while prompting the central bank to raise its repurchase rate, according to Peter Bauer, an economist from the University of Johannesburg.
The country's consumer inflation accelerated to 4 percent in April from 3.1 percent in March, mainly driven by surging energy prices. Fuel prices rose by 11.4 percent after declining by 8.7 percent in March, marking one of the sharpest increases in fuel inflation on record.
The inflation has led to higher consumer spending and increased production costs for South African businesses, according to Bauer.
"I think given the global conditions right now, the energy, the price of petrol, for example, is going to be impacting households in a remarkable way. It's also going to be impacting the costs of, like food, food production is going up. And these are two of the key factors that households are contending with right now," he said.
On May 28, the South African Reserve Bank raised its repurchase rate by 25 basis points to 7 percent, citing rising inflationary pressures linked to higher fuel and food costs.
Bauer said the repurchase rate hike is expected to help curb the build-up of further inflation risks and stabilize market expectations.
"If we do not manage our inflation, the implications could be quite dire for South Africa. So going forward, I think that the Reserve Bank has taken the right steps in order to both protect the consumer but also protect the economy at the same time," the economist said.
Middle East conflict causes soaring living cost, repo rate hike in South Africa: economist
