South Africa’s headline consumer inflation increased slightly to 2.9% year-on-year in November from 2.8% in October, although food prices cooled to a 14-year low. (Guillem Sartorio/Bloomberg via Getty Images)
With inflation having drifted well above the South African Reserve Bank’s target for 10 consecutive months, analysts expect that prices will have increased slightly in March.
Statistics South Africa will release the consumer price index (CPI) inflation data for March on Wednesday morning. The domestic inflation announcement comes as the war-induced oil price shock has caused global inflation to look progressively non-transitory, with prices in advanced economies hitting unexpected highs in recent months.
In a research note, Investec economist Lara Hodes said CPI is expected to have increased modestly in March to 5.8% year on year, from 5.7% in February. Nedbank’s economists also forecast that inflation would hit 5.8% — which is well above the Reserve Bank’s midpoint target of 4.5%.
Elevated inflation, Hodes noted, is expected to be driven mainly by further fuel and food price hikes.
Global inflation has surprised on the upside in recent months, bucking expectations that elevated prices would be transitory.
Elevated prices have become a stubborn characteristic of the global recovery from Covid-19’s economic onslaught, as persistent supply constraints and robust demand growth continue to give strong impetus to inflation.
Last week, the Bureau of Labour Statistics in the US revealed that inflation stateside climbed to 8.5% in March, marking the highest levels since December of 1981. The inflation data came a week after the federal open market committee’s very hawkish minutes were released.
The committee pointed to Russia’s invasion of Ukraine as a key source of ongoing economic uncertainty. The conflict, the minutes noted, “carried the risk of further exacerbating supply chain disruptions and of putting additional upward pressure on inflation by boosting the prices for energy, food, and other key commodities”.
Earlier this month, general manager of the Bank for International Settlements (BIS) Agustín Carstens warned that the world “may be on the cusp of a new inflationary era”. The BIS is an international financial institution owned by central banks, which has the mandate of fostering international monetary and financial co-operation.
In a speech delivered at the International Centre for Monetary and Banking Studies in Geneva, Carstens noted that almost 60% of advanced economies currently have year-on-year inflation above 5% — more than three percentage points above typical inflation targets. “The forces behind high inflation could persist for some time,” Carstens said.
“New pressures are emerging, not least from labour markets, as workers look to make up for inflation-induced reductions in real income. And the structural factors that have kept inflation low in recent decades may wane as globalisation retreats,” he added.
In South Africa, inflation is expected to remain above the Reserve Bank’s target for the rest of the year. According to the bank’s monetary policy review, released last week, headline CPI inflation is projected at 5.8% in 2022 — well above the 4.9% forecasted in January this year.
Inflation is forecast to breach the upper limit of the Reserve Bank’s 3% to 6% target range in the second quarter of this year and is expected to return to the target midpoint in 2023.
Looking ahead, the review noted, “domestic inflation could surprise higher if the hostilities in Ukraine continue to intensify or if oil and gas supplies are additionally constrained”.
“The upward drift in inflation expectations and sharply higher producer prices further tilt the inflation risk to the upside,” the review added.
“Higher expected wage growth, a somewhat weaker rand and further advances in global goods prices could exert additional upward pressure on headline inflation.”