Dirty coal is keeping SA’s inflation in check

Inflation in the Euro-area has averaged 7.9% since March, and 6.1% in South Africa.
Image: Bloomberg

South Africa’s reliance on coal to generate most of its power makes it an environmental pariah but it’s also helping keep inflation in check, according to S&P Global Ratings.

While energy prices have soared as European nations scramble to find alternatives to Russian gas supplies following its invasion of Ukraine, South Africa’s power utility Eskom has been left relatively unscathed.

Read: Mantashe given 10 days to address energy crisis

“One of the reasons that South Africa’s inflation is more manageable than in certain other countries is because Eskom is largely a coal-fired generator and the coal is locally sourced, mostly under long-term contracts” Omega Collocott, S&P’s director of corporate ratings for the country said in an interview. That means the world’s 13th-biggest greenhouse gas emitter “ironically doesn’t have as much inflationary pressure because of dirty power generation,” she said.

Inflation in the Euro-area has averaged 7.9% since March, and 6.1% in South Africa.

Still, South Africans might be hard-pressed to come up with any other redeeming qualities about the utility, which generates over 80% of the nation’s power from coal and is closing in on record annual power outages just seven months into the year.

“Whether electricity is off or on is a different story, but I think that’s an interesting observation and may be a bright spot in the dark,” Collocott said.

© 2022 Bloomberg

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  CPIThe Consumer Price Index (CPI) measures monthly changes in prices for a range of consumer products Jul 2022 7.40%
  CPI ex OERThe Consumer Price Index excluding Owners’ Equivalent Rent (CPI ex OER) measures monthly changes in prices for a range of consumer products excluding Owners’ equivalent rent that measures changes in the cost of owner-occupied housing Jul 2022 8.10%
  RepoThe rate at which the Reserve Bank lends money to the country’s commercial banks and set by the Reserve Bank’s Monetary Policy Committee. Aug 2022 5.50%
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