[TOP STORY] Where will inflation go in 2022?

‘I think the key thing is to just be able to know where the spread is and how good and how bad it could be when you’re planning yourself as a business, for example’: PwC economist Dr Christie Viljoen.

SIMON BROWN: I’m chatting now with Dr Christie Viljoen, PwC economist. Christie, I appreciate the time this morning. Your report came out looking forward to 2022. I must say I thoroughly enjoy these reports, I’m that sort of a nerd. When I read it, it kind of struck me that it’s not doom and gloom. It’s also not excellent, booming; it’s kind of a little bit middling, which is in some ways a bit disappointing. We would like to do better, but it is to my sense that sort of middling where we are going to be over the course of this year. Is that a fair reflection?

DR CHRISTIE VILJOEN: I think that’s very fair, Simon. This time last year any kind of report like this would’ve been filled with lots more uncertainty and probably more doom and gloom.

Twelve months ago we hadn’t even started with vaccines. So at the moment we are looking at sort of a postlockdown economy very soon, where we will probably not see strict lockdown regulations againwhich is very good news.

At the same time we’re sitting with challenges like rising unemployment and load shedding. So it’s that balance of good and bad news that’s a sobering reflection of what 2022 could look likewhere we are looking and hoping for good news but we are still facing a bunch of challenges.

SIMON BROWN: Yeah. The one that really struck me was that you talk about real disposable income expected to grow 2.6% this year. That’s alongside a GDP growth of 2.6%. My sense around that is that obviously last year it was a lot bigger, but that was a bounce off 2020. The 2019 number was sort of sub1%. Is 2.6% saying that our consumers, the customers out there, are okay?

DR CHRISTIE VILJOEN: Well, it’s a nice number in a historical context. This kind of growth number was, like you say, much lower before Covid-19. We are still seeing this year that we’re going at least [to see] a bit of bounce back, as we have this postlockdown situation. We know that restaurants and hospitality should do better, so it’s not really growth or sustainable growth, it’s more a recovery from where we have come.

So yes, the 2.6% number looks relatively good and I think for households it’s obviously good news. The problem is just that households are facing an uphill battle when it comes to quite a few things. We know that inflation has been elevated recently. We know that the Monetary Policy Committee, the MPC, is sitting at the moment, and tomorrow afternoon they’ll probably tell us interest rates are moving higher again. We know the petrol price was at R20/litre recently. So that 2.6% number, while it’s good, is not going to be very satisfying for many consumers, I think, because in their daytoday lives they are facing all of these other elements that are telling them a 2.6% growth rate in my real household income, isn’t that a great number?’ when you are paying more and more and more every time you fill up your tank.

SIMON BROWN: Yeah. That’s a fair point those petrol tanks becoming massively expensive.

Inflation – the last number was 5.9%. As you said, the MPC is sitting and announcing tomorrow. Your sense on this inflation coming? We’re expecting sort of around 4.6%. In other words, we are probably at or near the peak, and inflation’s going to drift back to the middle of the band.

DR CHRISTIE VILJOEN: Yes, I think the recent numbers were quite elevated, as we’ve seen across the world, and they will probably be coming down again. There is obviously the risk [to] energy prices every time you think of this. By energy prices I mean both the fuel and the electricity prices that go up each year, which we still have to face with all kinds of uncertainty.

I think that inflation will moderate in the first half of this year and get us back closer towards that 4.5% level that the government is favouring. Irrespective of the fact that we see it coming back down again, we know interest rates will be rising quite significantly this year. The Reserve Bank has been saying that for quite some time and their forward guidance is telling us to expect, let’s say, about five rate hikes. They’re going to probably stick with 0.25 percentage points every time. It’s probably going to be about five, maybe more, maybe less. All of these decisions are based on data.

We’re going to get an updated guidance from the Reserve Bank by tomorrow. That will give us a better idea of what’s happening, but most certainly interest rates [will be] rising over the next year or two. It’s not necessarily in response to inflation, it’s more a case of we need to get back to where we were in 2019. Part of getting the economy back to where it was is also moving interest rates back to where they were. That’s their primary driver. They need to undo all of this monetary stimulus that we were given in 2021.

SIMON BROWN: I remember your point [made] around that towards the end of last year, where it’s not a response to inflation, it’s about getting back to normality.

A quick last question. The IMF yesterday came out saying, yes, growth in South Africa 1.9% – it downgraded us. You’re more optimistic, looking for about 2.6% GDP growth for this calendar year.

DR CHRISTIE VILJOEN: Look, it’s very early in the year and at this stage the diversity of forecasts is quite wide, and that’s the case every calendar year. It all depends on the assumptions you make. Whenever you do a forecast, you are assuming certain things, you are assuming certain numbers where you think they will be for the given year. So the IMF maybe is looking at a more pessimistic global perspective than we are, for example. It’s tough at this stage to really trade blows between different forecasts. I think the key thing is to just be able to know where the spread is and how good and how bad it could be when you’re planning yourself as a business, for example.

SIMON BROWN: A fair point on that. We haven’t even had the Q4 number yet for last year. It’s still very early in the year.

Dr Christie Viljoen, PwC economist, I always appreciate the insights.

You can listen to this morning’s full MoneywebNOW podcast here. 



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