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South Africans face further rates hike pain

STORY: Analysts expect South Africa's central bank to hike its main lending rate on Thursday (May 25).

For citizens like nail technician Nompumelelo Nkomo in Johannesburg's Alexandra township, that likely means more pain ahead.

“Cost of living is very high. A loaf of bread, my love, is 20 rands..."

South Africans have been facing rising food prices driven by the global health crisis and then the war in Ukraine.

A power crisis has also hit the economy.

Outages, known locally as "load-shedding", leave many homes and businesses without power for ten hours a day.

"It’s not helping at all. It’s killing our business especially us, small business owners. I can’t afford a generator and solar whatever."

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The central bank estimates the blackouts will add 0.5 percentage points to headline inflation this year.

Annual consumer price inflation is running at over 7%, above the target range of 3%-6%.

In a bid to control inflation, the South African Reserve Bank has hiked its main lending rate 425 basis points since November 2021.

But inflation is still running hot.

The bank now faces a dilemma - how to keep a lid on inflation without further stifling economic growth.

The majority of economists surveyed by Reuters last week said they expect Thursday's rate decision to be a 25 basis points rise to 8%.

Koketso Mano is a senior economist at lender First National Bank.

“Rates are lifting, are trickling up to levels we haven't seen in a decade right? So say for example there is another hike in May, which some analysts do expect, to 8%. That should put further pressure on households and now it becomes again important to distinguish these households right? Your lower end of the spectrum, already under pressure, having to deal with rising inflation, incomes not rising as much, food inflation accounting for majority of the basket – they’re going to feel the pressure there.”

Economists say credit demand has been rising as household incomes have not kept up with prices.

Higher borrowing costs, they warn, could increase indebtedness.

At the same time the rand has weakened by 10% this year - making imports more expensive in another cost likely to hit South Africans' wallets.