Inflation outlook remains on target
The increase in the consumer price inflation (CPI) has been marginal since the beginning of 2019, but rising fuel and electricity prices are likely to push up inflation in the coming months, according to analysts.
Figures released by Statistics South Africa on Wednesday showed that CPI increased to 4.1% in February year on year from 4% year on year in January, mainly because of the increased cost of transport and insurance.
A note by audit and advisory firm PwC stated that the cost of public transport had increased by 0.6% since January and was 8.9% more expensive than in February last year.
Linked to vehicle operating expenses, the cost of insurance went up by 6.8% compared with February last year.
Inflation is likely to increase gradually over the next few months, but is expected to remain below 5% for most of the year and to average slightly above the midpoint of the South African Reserve Bank’s inflation target range of between 3% to 6%.
Nedbank analysts said the Reserve Bank, which is meeting next week to review interest rates, was likely to put interest rates on hold for most of the year “before resuming a mild tightening cycle in November in anticipation of higher inflation in 2020”.
This is not far off from the findings of a Reuters survey released on Wednesday, which said the majority of economists approached didn’t expect the Reserve Bank to make any changes to the interest rates until the second quarter of 2020.
Retail figures released on Wednesday showed a stronger-than-expected recovery.
StatsSA announced an annual 1.2% increase in January following a 1.6% drop in December.
The highest contributors were retailers in pharmaceuticals, medical goods, and cosmetics and toiletries, which registered an increase of 6% year on year.
Nedbank’s economic unit said: “Over the short term, consumer spending will be helped by subdued inflation and lower petrol prices, which will support disposable income. However, growth in consumer spending will be contained by fragile consumer confidence and slightly higher debt service costs.”
But, with high unemployment and large debt, household finances remained under pressure and retail growth was expected to remain constrained.
“Lending institutions are also likely to keep lending standards to households tight owing to the cloudy economic outlook, which has been exacerbated by electricity load-shedding and slowing global growth,” Nedbank said.
Consumers would also think twice before spending on nonessential goods and they had already started to cut down. In January, spending on food, beverages and tobacco in specialised stores contracted by 2.1% year on year. The biggest contraction was 3% in the hardware, paint and glass category.
Tebogo Tshwane is an Adamela Trust journalist at the M&G