Bad news for car and tech prices in South Africa

Just after two a long time of semiconductor chip shortages and source-chain challenges brought about by the Covid-19 pandemic, tech and automobile selling prices face another knock after Russia’s invasion of Ukraine, states senior economist at Absa CIB Peter Worthington.

With Ukraine and Russia jointly accounting for 70% of the world’s exports of neon gas, the conflict may well impair the offer of vital semiconductor chips, which was only just starting to settle immediately after the disruptions of the pandemic, he explained in a research notice on Tuesday (15 March).

Extremely purified neon gasoline is a key ingredient of the lasers that etch the integrated circuits on to the silicon wafers, explained Worthington.

“But considering the fact that neon fuel is distilled from the air, other suppliers can potentially pretty quickly established up output capabilities, unlike other vital commodities, such as oil, palladium or cobalt, the place the out there offer is tied to a unique countrywide geography.”

“Thus, products such as new motor vehicles (5.4% of the CPI basket) and other chip-reliant merchandise such as televisions, family appliances and telephones (collectively 1.2% of the basket) could expertise some offer worries that could shore up their price ranges.”

Worthington included that new automobile inflation has been gently rising not long ago right after many years of prints below the regular CPI inflation.

“Some gamers in South Africa’s motor motor vehicle distribution sector believe that charges will decline, relatively than increase. Normally, the reality that this shock will be a important strike to consumers’ true disposable earnings is a countervailing demand from customers-facet offset to the various provide-facet cost-thrust pressures.

“The exact selling price intersection where by risky and uncertain need and offer curves fulfill is tough to pin down with self esteem, particularly versus the current backdrop of this major stagflationary shock. That said, we are lifting our main CPI inflation forecast by .3 proportion factors in 2022 and by .4 in 2023.”