By Sifiso Sibandze
Since 2020, following the outbreak of the Covid-19 pandemic, consumers were plunged into the red and the Russia-Ukraine War was a nail in the coffin as it triggered a perpetual inflation spiral resulting from the supply chain disruptions.
With the ongoing Russia-Ukraine War looking far from being over, consumers continue to grapple with the high cost of living crisis which is being fueled by the rather stagnant Cost of Living Adjustments (CoLA) by employers. Outstandingly, there seems to be no end in sight to the increasing bullish inflation which points to one direction, the cost of living will continue soaring to sky-high levels, propelling more emaSwati to poverty.
Notably, inflationary pressures picked up in 2022, largely driven by increased prices for energy, food, and transport, reflecting the impact of the war in Ukraine. Annual inflation increased from 3.7 per cent in 2021 to 4.8 per cent in 2022.
In response, between January and December 2022, the Central Bank of Eswatini increased the discount/repo rate by a cumulative 275 basis points to 6.5 per cent. It further increased this rate by 50 basis points in March 2023 to 7.25 per cent.
Economic experts have noted that the combination of slow economic growth and high inflation led to a slight increase in the estimated poverty rate in 2022. According to the Central Bank, inflationary pressures are projected to remain elevated in 2023 due to the expected gradual transmission of higher imported prices to local prices and the increase in administered prices.
The inflation which has stubbornly remained high has led to a run of interest rate hikes by the Central Bank. Observably, the Central Bank will continue being under pressure as South Africa, the African region’s economic powerhouse with strong economic ties with Eswatini is also wrecked by the same inflation monster.
On Wednesday, South Africa’s inflation rose for the second month in a row in March, to 7.1 per cent year on year from 7.0 per cent in February, data from Statistics SA showed. Analysts polled by Reuters had predicted a drop to 6.9 per cent. To counteract the persistent rise in inflation, the South African Reserve Bank (SARB), surprised analysts with a larger-than-expected 50 basis-point hike.
The SA Reserve Bank targets inflation of between 3.0 per cent and 6.0 per cent. Given the connectedness of Eswatini and South African economies, the higher domestic and South African inflation due to supply disruptions emanating from the war in Ukraine will continue to add a strain on the already burdened consumers.
The Central Bank has revised-up its inflation forecasts for 2023 to 5.6 per cent (from the 5.5 per cent forecast in January) and from 5.2 per cent to 5.3 per cent for 2024. The Central Bank said inflationary risks remain elevated “due to a high inflation outlook in South Africa which would transmit to domestic inflation through imports, weaker Rand outlook, elevated oil prices and other domestic administered price increases.
The World Bank supported the Central Bank’s observation, also saying the expected gradual transmission of higher imported prices to local prices and the increase in administered prices is projected to increase inflation to 5.7 per cent in 2023.