Although the Russia-Ukraine war is partially to blame, the truth is that inflation over the past two years has been fed by excessive offshore monetary and fiscal stimuli and a phenomenal rise in central bank balance sheets and money supply.
This allowed South Africa’s current account to reach a record-high surplus of 5.2% of GDP in 2021. Strong commodity prices also provided some fiscal relief to the government via a bumper season of corporate income tax collections from South African miners and exporters.Within the broader export basket, there was an 80% increase in key commodity exports — including rhodium, iron ore, gold, palladium, coal, platinum, manganese and diamonds in 2021.
Pillay says commodity prices remain materially above what he would consider normal levels, citing the example of “The market got ahead of itself in terms of demand, and prices failed to factor in the supply coming on in the next few years. If you map demand, even if you are bullish on the rise of electric vehicles and the transition to renewable energy, several base metals enter balanced or surplus markets. Beyond that, however, there are likely to be deficits,” he says.