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How loadshedding impacts inflation
If loadshedding normalises between stages 4 and 5 in 2023, we could see up to 40 basis points (bps) of upward pressure on headline CPI (Consumer Price Index) if the complete cost of backup power is passed to the consumer.
With the cost of backup power across residential, industrial and commercial users estimated to be 40 to 60% more per unit of electricity than the “average medium user” tariff charged by Eskom, we calculate the weighted-average cost of electricity, per stage of load shedding, to assign an inflationary effect for the varying stages of load shedding.
Increased food inflation
We currently estimate CPI will average 6% in 2023, which excludes the possible upward pressure of load- shedding solutions.
Our estimates are above consensus due to an elevated food inflation profile, with food and beverage inflation estimated to average 9.9% this year. Based on this, CPI is expected to ease to 6.7% in February, falling into the target band in June and reaching 5.5% by December 2023. The risk to this estimate is to the upside, especially as food inflation has not yet peaked and has consistently surprised to the upside in the past four months.
However, we estimate a food inflation profile that also disinflates slowly through the course of the year. This plays a major role in the monthly CPI estimates, as food and beverages make up 23% of CPI. If food prices were to disinflate quicker than we currently project, headline CPI will likely fall below our estimate. The impact of load-shedding alternatives is not yet included in our baseline inflation forecasts.