Soaring operating costs will squeeze margins as MNCs struggle to raise prices

Inflation will rise to a 14-year high in 2022, curtailing customer spending power

Intense competition and muted customer sentiment mean MNCs should be prepared to lose some market share if they pursue aggressive price hikes. Alternatively, to defend market share, MNCs should consider running promotions, expanding value-added service offerings, and increasing marketing spending.


Headline inflation remained unchanged at 5.9% YOY in April, but this still represents the highest rate since early 2017. The headline rate conceals major variations between components of the inflation basket. ICT service prices fell by 0.9% YOY, food prices rose 6.3% YOY, electricity prices increased by 14.1% YOY, and fuel prices surged 29.2% YOY. Meanwhile, domestic producer price inflation rose to a new record high of 13.2% YOY, reflecting rising costs for businesses amid global and domestic supply shortages. Rising inflation has begun to weigh on private sector sentiment; the S&P Global Purchasing Mangers’ Index slumped from 51.4 in March to 50.3 in April, its lowest level since December 2021 (a figure above 50 represents a MOM improvement in business activity), and the FNB/BER consumer confidence index fell deeper into negative territory in March 2022, registering -13 (a negative figure means the majority of consumers believe it is a bad time to buy durable goods).

Our View

Upward revisions to global commodity price forecasts for agriculture and oil, as well as rising domestic electricity tariffs implemented by state-owned electricity utility Eskom, will cause inflation to accelerate in H2 2022 and peak above 10% YOY. This will result in an annual average inflation rate of 7.0% YOY in 2022, which is substantially above the 4.6% YOY recorded in 2021, and the highest rate since 2008. However, a strong rand through early 2023 will soften the worst impacts of the global drivers of inflation. While substantial, the acceleration in South Africa’s inflation will be less dramatic than in other SSA markets, including Ghana, Nigeria, and Ethiopia.

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