Higher consumer price inflation could persist for the rest of the year, PwC South Africa’s latest ‘Economic Outlook’ report shows.

The firm’s downside scenario sees local inflation averaging 5.3% this year, alongside elevated global inflation.

The firm notes that, as a small economy, South Africa is vulnerable to global forces like rising producer and consumer price inflation.

PwC is also pencilling in an average inflation rate of least 5.3% under a downside (higher inflation) scenario, including above -5% year-on-year readings deep into the year. This scenario assumes pressure on energy (electricity and fuel) and food prices, which collectively account for about a quarter of the consumer basket.

PwC highlights that local electricity and fuel prices are increasing, while weakness in the rand is always a risk.

The downside scenario for consumer prices contains a substantial list of cost risk factors that South African companies are facing in the year ahead, PwC points out.

These include rising electricity prices, rising fuel prices, rand depreciation and rising food prices.

For companies to respond to increased input cost pressures, PwC posits that cost-cutting is an opportunity to invest in differentiating a company’s value proposition.

The report also mentions that the South African Reserve Bank Monetary Policy Committee is planning four more interest rate hikes this year.

PwC says that, as the repo rate trends higher, some borrowers are considering fixing the interest rates on their debt.

In terms of the country’s economic situation, PwC says that there has been progress in getting economic activity back to pre-pandemic levels.

It points out that a large number of industries are seeing activity levels above those seen prior to Covid-19, as evidenced by the index of freight payload transported being 14.8% higher in December 2021 compared with the level in December 2019, for example.

This reflects an improvement in demand conditions, both locally and abroad, PwC notes.

The report also notes that the country’s rising unemployment rate offers expanding companies a wider pool of available labour.

It points out that expanding retail companies need to transform the workforce that they have by upskilling staff.

Pivoting to the recent Budget 2022, PwC says it showed improved fiscal metrics, but with economic stagnation still presenting a very real risk.

Impactful changes in the country would be solving the electricity crisis, upskilling workers and accelerating private investment, PwC asserts.