The cost of living in South Africa is expected to remain elevated for the better part of the year as interest rates could increase nonetheless in spite of consumer prices easing for the third month in a row in January.
Data from Statistics South Africa (StatsSA) yesterday showed that the annual inflation rate slowed to 6.9% in January, from 7.2% in December.
Though this headline print was the lowest since May 2022, it was still above the upper limit of the South African Reserve Bank’s (SARB) target range of 3%-6%.
FNB senior economist Koketso Mano said there should be an upward monthly pressure driven by the lift in fuel prices, as well as survey outcomes on health-related services that should lift core inflation.
Mano said throughout 2023, fuel inflation should soften relative to last year, albeit at a slower pace than previously anticipated given while food inflation should be sticky given elevated local input costs.
“These, along with transient inflation from the move towards cleaner energy, should keep global inflation sticky and above pre-pandemic levels for some time,” Mano said.
“The spillover of these factors to South Africa will be exacerbated by local production issues so long as the electricity constraint remains binding on the economy.”
StatsSA yesterday said a notable fall in the price of fuel was the biggest factor behind the dip in the headline rate, the fuel price index declined by 10.5% in the month between December and January, dragging the annual rate down to 13.1% from 22.8% in December
StatsSA chief director for price statistics Patrick Kelly said a litre of 95-octane petrol purchased inland cost R21.40 in January, down from R23.46 recorded in December, and roughly at a level last seen in March 2022 when it was R21.60.
However, Kelly said the prices of food and non-alcoholic beverages had risen to their highest in nearly 14 years driven by the increase in bread and cereals, oils and fats, alcoholic beverages and tobacco and vegetables.
“Food and non-alcoholic beverages inflation continued to accelerate,” Kelly said.
“The annual rate climbed to 13.4% in January, the highest reading since April 2009 when the rate was 13.6%.”
The SARB last month raised its 2023 forecast for food price inflation to 7.3% from 6.2%.
Trade union Uasa spokesperson Abigail Moyo said the surging food prices were a cause for concern.
“South Africa’s workers have to contend with the ever-increasing cost of living while their salary increases don’t keep up,” Moyo said.
“With items such as maize meal going up 36.5% since January last year, onions 48.7%, samp at 29.6% and instant coffee at 26.4%, it is clear that difficult times are not nearly over for households.”
On a monthly basis, consumer prices were down by 0.1% following a 0.4% rise in December.
The annual core inflation, which excludes prices of food, non-alcoholic beverages, fuel and energy, stood at a three-month low of 4.9% in January, unchanged from the prior month.
Nedbank economist Johannes Khosa said inflation would continue to trend lower off a higher base throughout 2023 due to declining fuel prices and rising demand for commodities from the reopening of the Chinese economy.
Khosa said their base view was for inflation to fall below the upper end (6%) of the SARB’s target around May and to average 5.5% for 2023, slightly higher than the SARB’s forecast of 5.4%.
“However, risks to the inflation outlook remain on the upside. Brent crude prices could stay at higher levels as supply could be interrupted by geopolitical tension,” Khosa said.
“The OPEC+ cartel will continue cutting oil production by 2 million barrels per day until the end of 2023 to support the oil price, while Russia - the second-largest oil exporter - announced that it would cut production by 500 000 barrels per day in March in retaliation to sanctions.
“At the same time, the rand remains vulnerable to uncertainties in the global economy. These, coupled with the steep increase in electricity prices and higher input costs due to load shedding, could cause inflation to moderate at a slower pace than expected.”
BUSINESS REPORT