Inflation Sensitivity Towards Fuel Price and Electricity Distribution in South Africa

Abstract

The determination of prices for goods and services in a specific economy is significantly influenced by commodity prices and the distribution of energy. Hence, this study aims to examine the impact of fuel prices and electricity supply on the inflation rate in South Africa. The empirical analysis focuses on a time series data covering the period from January 2009 to December 2021. The study utilizes the Johansen test for cointegration, Vector Error Correction Model (VECM), and Granger approaches to establish the relationship between the variables. The empirical findings indicate the existence of a long-term relationship among the variables, indicating that long-term changes in electricity supply and fuel prices have an influence on South Africa's inflation levels. Similarly, the short-term results suggest an inverse relationship between fuel prices, electricity supply, and the inflation rate. In order to reduce the inflation rate, it is recommended to decrease spending on imported fuel and enhance electricity supply through increased investment in renewable energy and research and development (R and D).

Keywords

• energy price
• fuel price
• inflation
• cpi
• electricity distribution
• load shading
• var model
• south africa