Never let a good crisis go to waste
Energy availability and consistency remain top of mind as the country faces ongoing and worsening load-shedding. Energy regulator Nersa granted Eskom tariff increases of 18,65% for the 2023/24 year and 9,74% for 2024/25. While this is lower than what the utility had applied for, it is another blow to consumers who have been facing increased pricing pressures over the past year. Over and above the direct impact for administered prices, continued load-shedding is already having a significant impact on the agriculture sector and supply chains (in particular, cold chain storage) for retailers, posing a risk to availability and prices of food.     

A consideration to support households and businesses should arguably form part of a broad-based action plan or emergency measures. The 2023 budget, to be presented in February, is expected to include more information on the plan for government to take on a portion of Eskom’s debt and any additional support that may be required. It bears repeating that great opportunities may well be found in the solutions to solve this energy crisis, especially those that galvanise partnerships with the private sector and households. 

Headline inflation for the year to December 2022 moderated further to 7,2%, while core inflation also eased. This brings the average annual consumer price inflation in 2022 to 6,9%, from 4,5% the year before.  Producer inflation also continued to trend lower, surprising to the downside. Inflation expectation survey data from the BER, however, indicated an uptick in inflation expectations above the South African Reserve Bank’s (SARB’s) 6,0% upper target.
 

The Monetary Policy Committee (MPC) lifted SARB’s key lending rate by 25bps (0,25%) to 7,25%. Three MPC members voted in favour of a 25 bps increase and two in favour of 50 bps. SARB downgraded forecasts for growth over the medium term, given elevated levels of load-shedding. Risks to the inflation outlook are still assessed to be to the upside, although the progression of the interest rate hiking cycle is clearly moderating. The FTSE/JSE All Bond Index gained 3,0% in January, while the rand fell by 2,3% to the US dollar. 

Domestic financial markets staged a meaningful recovery in the first month of 2023. Local equity markets rallied, with the FTSE/JSE All Share gaining 8,9%. Industrials posted a 13,4% return, supported by gains from meaningful index positions that benefited from the China reopening narrative. Notable gains were recorded for Naspers (18,5%), Prosus (17,8%) and Richemont (18,3%), despite Prosus saying it would be retrenching 30% of its staff. Resources rallied 7,1% with gains from industrial metals. The property sector gave back some of the previous quarter’s gains, declining by 1,0%. While valuations for South African listed assets are still attractive, the question remains: How much of the year’s potential good news has been priced in the first month?