Rand hits the skids against the dollar as South Africans face R3 a litre petrol price hike in June

Bloomberg reported that Wednesday’s hotter-than-expected US inflation reading has revived concerns of a 75 basis-point rate increase by the Fed, rather than the 50 basis-point pace that markets have come to grips with.

US inflation is remaining persistently high, raising the prospect of aggressive Fed rate hikes and keeping the dollar on the front foot, noted Treasury One. Bianca Botes, director at Citadel Global said that global markets anticipate that the aggressive tightening by the Fed will continue as a result of rising US inflation, with hikes of 50bps at each of the upcoming Federal Open Market Committee meetings this year.

Furthermore, indications are that the interest rate hikes will be aggressive going forward following a second increase of 25 basis points in March which brought the repurchase rate to 4.25%. Makube said that summer grain and oilseed harvest is in its infancy and will start ramping up in June while cultivation operations for winter crops are currently in full swing. Grain producers and logistics companies in the agriculture value chain will feel the pain as closer to 80% of grain is transported by road.

In advanced economies, it accounts for as much as 15% of the basket, while in Africa it exceeds 25%, with some countries including Ethiopia, Zambia, Sudan, and Nigeria having food weightings above 50%, economists Jacques Nel and Petro van Eck, at Oxford Economics Africa said in a research note.

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