Rising inflation globally to multi-year highs is becoming the biggest worry in the risk cocktail with the Covid-19 pandemic and rising interest rates.
Record food and energy costs have fuelled local inflation to 5.9% in December, a level last seen on 2017; in the US inflation accelerated to its fastest pace since 1982; in Britain the rate of inflation has rocketed to its highest level for nearly 30 years, and in New Zealand food prices rose the most in more than a decade in 2021, adding to risks that central banks will need to do more to contain inflation expectations.
And there seems to be no brakes on the big culprit behind the inflation nightmare. Reuters reports Brent crude futures, which soared 50% in 2021, are up a further 14% already in 2022 at seven-year highs of $89 a barrel. With production capacity tight, inventories low and geopolitics racking several producing regions, oil is hurtling towards $100, a level Goldman Sachs predicts will be breached by mid-year. JPMorgan predicts oil could reach $125 a barrel this year and $150 in 2023.
For consumers, this means a harder squeeze on the cost of living. The petrol price, which jumped by 40.5% in December 2021 compared with December 2020, is set to spike again in February, while borrowers are bracing for another possible hike in interest rates as soon as next week. On top of this, and the fact that electricity was already 14% more expensive in December compared to the same month last year, Eskom’s proposed tariff hike of 20.5% for its next financial year is set to kick in from April 1. It’s understandable that South Africans will be united in their outrage, but that it will make a difference remains to be seen.
A little inflation can be good for the economy as it can encourage consumers to hunt for bargains and stock up sooner. But inflation means getting less for your buck – at the tills, petrol pumps, for medical care and keeping the lights on. With higher interest rates it will also be harder to service debt, circling back to curbed spending and more pressure on our already ailing economy. A vicious circle indeed.
In the markets, the rand retreated slightly after rallying strongly after the CPI release to last trade at R15.33 against the US dollar. “We are still the best performing EM currency by some distance in 2022. The 100-day moving average on the daily graph is at R15.28, and a sustained break of this level could see further rand strength,” comments TreasuryONE.
On the commodity front, oil is holding at 7-year highs, while gold and platinum are holding onto their gains of the previous session at $1,840 and $1,022/oz respectively. Palladium is a touch softer at $1,998.
Here’s a roundup of the world’s top and most interesting headlines:
SA Business
New vaccine manufacturing campus is proof that Africa will ‘stand on our own’ – President Ramaphosa – Daily Maverick
America’s big biltong play has now raised nearly R1 billion to market ‘air dried meat’ – Business Insider
South African cannabis company details expansion plans following R300 million cash injection, including Europe and US – BusinessTech
Global Business
World Bank chief takes swipe at Microsoft’s $69 bln gaming deal as poor countries struggle – SABC News/Reuters
Elon Musk laments birth rate decline, expresses concern there won’t be enough people to send to Mars – Business Insider
Djokovic has 80% stake in biotech firm developing Covid drug – The Guardian
Markets
Asian shares rise as China cuts key mortgage rate – Reuters
Gold near highest since November as traders seek inflation hedge – Bloomberg
Traders bet that oil at $100 is a question of when, not if – Bloomberg
Opinion/In-depth
The politics of disruption: ANC councillors’ destructive path is likely to hurt the party in 2024 elections – Daily Maverick
How COVID is affecting school attendance in South Africa: piecing together the puzzle – The Conversation
Critical aspects of the Covid pandemic life that we should keep and preserve – Daily Maverick
Video
There’s a paradigm shift happening in the markets; position accordingly – Sean Peche – Biznews
Court BATTLE over ‘illegally’ excessive electricity prices in SA – Biznews
China cancels, suspends dozens of flights ahead of Olympics – Newsy
