Published: 14 April 2025

South Africa's electricity prices have skyrocketed by more than 600% since 2008, far outpacing headline inflation and becoming a key structural driver of rising costs across the economy. This relentless rise in energy costs continues to complicate efforts by the South African Reserve Bank (SARB) to ease interest rates despite recent dips in overall inflation.

Electricity tariffs, which are part of administered prices - including municipal charges and water tariffs - have consistently outstripped broader inflation for the past 16 years. According to Momentum Investments, electricity prices surged by over 600% between January 2008 and early 2025, compared to just 139% growth in headline inflation over the same period.

While inflation cooled notably through 2024, falling below 3% in October and November as food and fuel prices eased, a rebound began in 2025. In February, inflation rose slightly to 3.2%, driven by rising fuel and food costs. The Reserve Bank noted that falling fuel prices in late 2024 had a dampening effect on inflation, even pulling administered price growth into negative territory by October.

Structural Pressures Remain

Sanisha Packirisamy, chief economist at Momentum Investments, cautioned that despite recent relief in inflation figures, deep-seated structural inflation drivers persist - particularly electricity tariffs. She warned that aggressive interest rate cuts could backfire by reigniting inflation.

"Electricity prices have been a key inflation driver, consistently increasing above the rate of headline inflation. This, combined with hikes in municipal services, puts pressure on businesses and ultimately consumers," she said.

The inflationary strain also weighs on economic growth, raising the cost of doing business and reducing disposable income. This is especially problematic as South Africa continues to struggle with load-shedding, which began in earnest in 2008 and has worsened in recent years.
Load-Shedding and the Rising Cost of Electricity

According to the Council for Scientific and Industrial Research (CSIR), South Africa's electricity price hikes began accelerating alongside the onset of load-shedding in 2008. As ageing coal-fired plants became increasingly unreliable, Eskom turned to expensive open-cycle gas turbines (OCGTs) - which run on diesel - to manage peak demand.

These OCGTs were meant for short-term use but have become a crutch in a strained power grid. Because Eskom's pricing is cost-reflective, this shift significantly pushed up the utility's generation costs, which were then passed on to consumers in the form of higher tariffs.

Between 2008 and 2010, the average annual electricity price increase exceeded 20%. Although the pace of increases slowed in the last decade, prices have remained above inflation, and picked up again after 2018 as load-shedding worsened.

Since 2014 alone, electricity tariffs have surged by 190%, not including a further proposed 12.74% increase for 2025.

With inflationary pressures tied so closely to energy costs, economists argue that tackling electricity pricing and supply stability is crucial for sustainable inflation control and economic recovery. Until then, high electricity tariffs will remain a significant barrier to lower interest rates and economic competitiveness in South Africa.

This article was first published by Daily Investor
- Daily Investor

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