Inflation decreased in January to 6.9% and South Africa’s consumer price index 0.1% compared to December, thanks to dropping fuel prices, but food prices keep rising at an alarming rate, registering 1.8% compared to December.
The sizeable drop in domestic fuel prices at the beginning of January helped, but food price inflation continues to quicken.
Over the past year, the price of onions increased the most (48,7%), followed by maize meal (36,5%), cake flour (31,6%), samp (29,6%), bread flour (29,3%), cauliflower (29,3%), instant coffee (26,4%), ice cream (24,6%) and pizza and pies (23,2%).
Food and non-alcoholic beverages were one of the main contributors to the annual inflation rate, adding 13.4% and 2.3 percentage points. Inflation for food and non-alcoholic beverages is currently at 13.4% compared to January 2022, the highest level since April 2009 when it was 13.6% year-on-year.
In addition, food price inflation averaged 9.2% in 2022 and due to high energy input costs, food price inflation is expected to remain elevated at 9.4% in 2023.
Economic research group, Oxford Economics Africa, says it is cautious about sticky prices even as the headline rate continues to cool. January’s inflation was below its expectation of 7.1% compared to January last year, but in line with the consensus forecast of 6.9%.
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Easing due to fuel prices
“Inflation eased by a greater margin than we expected in January, as a 10% month-on-month decline in fuel prices offset rising food price pressures. However, petrol increased by 1.3% at the beginning of February and diesel by 0.4%, while the latest depreciation in the Rand points to a further rise in fuel prices in March.”
Although price pressures are easing, it is not occurring in unison across the price basket, the group says.
“Annual headline inflation is likely to hover above the upper-end of the South African Reserve Bank’s (Sarb) 3%-6% inflation target band until May 2023, after which base effects should kick in and drive the headline rate down.”
The group says a gradual moderation in prices is still its base case, which sees inflation averaging 5.8% in 2023 while previously it was around 6.0%.
“The latest drop in headline inflation could be sufficient evidence for the Sarb to hold the repo rate steady at its upcoming Monetary Policy Committee (MPC) meeting in March 2023.”
However, a weaker Rand and hawkish pressure from the US Federal Reserve might see MPC members opt for one last 25 basis points increase before the widely expected pause, Oxford Economics Africa says.
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Other main contributors to inflation
Other main contributors to the annual inflation rate were housing and utilities that increased by 4.1% and contributed 1.0 percentage point, transport that increased by 11.1% and contributed 1.6 percentage points and miscellaneous goods and services that increased by 4.8% and contributed 0.7 percentage points.
Core inflation, which excludes volatile items such as food, non-alcoholic beverages, fuel and energy, held steady at 4.9% compared to January 2022, while the latest data shows that goods inflation moderated from 10.4% compared to January 2022 to 9.5%, while annual services inflation was unchanged at 4.3%.
