Improved efficiencies and competition in regulated sectors would help to lower inflation, review says
The Reserve Bank has pointed to “substantial deficiencies” in the regulatory frameworks that determine the prices of electricity, water, fuel and municipal rates, and called for changes that would enhance efficiencies and encourage competition in these regulated sectors, thereby helping to lower inflation.
That’s much worse than the Bank had estimated as recently as October, and though it sees help coming from new renewable energy producers, it expects that to make a difference only over the medium term. It also warns that load-shedding could lift inflation even more if supply chain disruptions prove worse than expected, especially for food.
Though global oil prices and exchange rates are a key driver of domestic fuel prices, the review notes that 40%-60% of the retail fuel price is determined by a mix of taxes, levies and margins that have increased more rapidly than the inflation rate over the past decade. The review further highlights the role SA’s high public debt levels play in weakening the rand and keeping inflation and interest rates high, and weigh on investment and growth. It argues that more sustainable public finances would make it easier for the Bank and the markets to reduce borrowing costs.
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