/ 23 March 2022

Inflation unchanged at 5.7%, but still well above Reserve Bank target

Nedbank expects inflation to increase in the coming months
Another 25 basis point rate hike could be announced tomorrow as the central bank endeavours to keep inflation in check

Inflation, which has largely been driven by elevated transport and food prices, is still well above the South African Reserve Bank’s target.

According to Statistics South Africa, consumer price inflation (CPI) held steady at 5.7% in February, unchanged from January. 

The Reserve Bank aims to keep inflation anchored at the midpoint of its 3%-to-6% target range. However, cost pressures associated with the global recovery from the Covid-induced economic downturn have caused inflation to drift above the 4.5% target for 10 consecutive months.

The data shows that the main drivers of elevated inflation were transport and food costs. Transport increased by 14.3% year on year, and contributed 1.9 percentage points to the

total CPI annual rate of 5.7%. Food and non-alcoholic beverages increased by 6.4% year on year, and contributed 1.1 percentage points.

South African consumers have had to grapple with rising fuel costs for a number of months. This is as oil prices have shot to five-year highs in 2021 as economies roused from the pandemic-induced slump.

More recently oil prices have hit new highs — the result of major oil producer Russia launching an assault on Ukraine and the sanctions that have followed — putting even more strain on consumers. Petrol is projected to cost R24 per litre in April, based on current data.

High food prices have also seemingly been affected by Russia’s war on Ukraine. After decreasing steadily for eight months, annual bread and cereals inflation jumped to 3.7% in February from 1.5% in January. South Africa imports 30% of its wheat from Russia and Ukraine.

The CPI announcement comes the day before the Reserve Bank’s monetary policy committee is set to meet and make a call on whether to hike the repo rate for a third time in an effort to keep inflation under control. If the committee implements another 25 basis point hike, this will bring the repo rate to 4.25%.