South Africa's consumer food inflation quickened to 9.0% in November, from 8.8% in the previous month. (Guillem Sartorio/Bloomberg via Getty Images)
Annual consumer price inflation has been driven dangerously close to the ceiling of the South African Reserve Bank’s target range, coming in at 5.9% in December.
According to data from Statistics South Africa on Wednesday, inflation came within a hair of the central bank’s 6% maximum, on the back of high fuel and food prices. The 5.9% annual increase marks the highest since March 2017, when the rate was 6.1%.
The figure has bucked economist’s expectations who forecast that consumer price inflation in December would come in at 5.7% year-on-year, up from 5.5% in November. The Bureau for Economic Research had a slightly higher forecast of 5.8%, noting that fuel and rent costs would probably cause inflation to accelerate.
December was the eighth consecutive month in 2021 during which prices ticked higher than the Reserve Bank’s midpoint target of 4.5%, reflecting global conditions in which elevated inflation has become a stubborn feature.
The most recent inflation data from the United States has once again defied assumptions that soaring prices, driven by Covid-related supply chain disruptions, are transitory.
Last week, data from the US Bureau of Labour Statistics showed that consumer prices surged 7% in December compared to the same month last year. Inflation in the US has topped 5% for seven consecutive months, with the December number marking the sharpest inflation increase in two decades.
The record US inflation data dropped a week after the minutes of the mid-December federal open market committee meeting were made public. The minutes indicated that, with inflationary pressures having broadened in the latter months of 2021, quicker monetary policy tightening and a reduction of the Fed’s balance sheet may be on the cards.
“Participants generally noted that, given their individual outlooks for the economy, the labour market and inflation, it may become warranted to increase the federal funds rate sooner or at a faster pace than participants had earlier anticipated,” the minutes read.
Emerging market economies such as South Africa will have to weigh up the prospect of a more hawkish Federal Reserve as the central bank’s decisions ripple through financial markets. Most have already started to increase rates to guard against the inevitable knocks to their currencies.
In November, the South African Reserve Bank decided to raise the repo rate by 25 basis points, marking the first hike in three years. The repo rate, which affects the cost of borrowing, was slashed to 3.5% amid the pandemic-induced economic downturn.