/ 18 January 2023

Inflation eases for a second month

Statistics South Africa says the consumer price inflation rate accelerated to 5.5% year-on-year in September.
Statistics South Africa says the consumer price inflation (CPI) fell to 7.2% year-on-year in December, down from 7.4% the previous month. Photo: Supplied

Inflation cooled slightly in December, in line with expectations by economists, who forecast that prices would continue to retreat.

According to data released by Statistics South Africa on Wednesday, consumer price inflation (CPI) fell to 7.2% year-on-year in December, down from 7.4% the previous month

The main drivers of inflation were transport, food and non-alcoholic beverages, miscellaneous goods and services and housing and utilities. 

Transport increased by 13.9% year-on-year and contributed 2%. Fuel was the main driver in this category.

Food and non-alcoholic beverages increased by 12.4% year-on-year, with the oil and fats category emerging as the biggest contributor to higher prices. 

Miscellaneous goods and services increased by 4.9% year-on-year. 

Housing and utilities rose by 4.1% year-on-year. 

Economists expected December inflation to fall. Nedbank economists forecast inflation to have softened to 7.1% year-on-year in December. 

“Easing transport costs likely exerted the most downward pressure, reflecting the significant cuts in local fuel in response to sharply lower global oil prices and the rand’s pullback against a faltering US dollar over December,” the bank said in a note. 

Investec chief economist Annabel Bishop said inflation is expected to fall to 7.2% year-on-year. 

“Inflation is proving slow to subside in South Africa, but this should accelerate … With South Africa’s CPI inflation still well above the target, and risks to the outlook, the SARB [South African Reserve Bank] is likely to hike the repo rate again this month, but by 50 basis points,” she said. 

In the United States, the consumer price inflation print for December was published last week and was in line with expectations. It showed that inflation slowed to 6.5% year-on-year in December from 7.1% year-on-year in November. This was the sixth consecutive slowdown in price growth and the lowest annual print since October 2021. 

Bureau for Economic Research economists said in a note that because the December inflation dropped in the US, traders have upped their bets that the Federal Reserve may downshift its pace of policy rate hikes to 25 basis points in early February. 

With South Africa following the same trajectory in terms of inflation easing, the country may see a less aggressive rate hike. 

Next week Thursday (26 January), the South African Reserve Bank monetary policy committee (MPC) will meet to decide how big an interest rate hike consumers can endure amid the rising cost of living.

The Mail & Guardian previously reported that the MPC expects inflation to remain above the upper limit of its 3% to 6% target range until the second quarter of 2023. Inflation is expected to revert to the 4.5% midpoint of that range by the second quarter of 2024.

Because of this, the Reserve Bank is expected to continue hiking rates, although at a slower pace, until it is confident inflation will return to the midpoint in its forecast horizon.

In 2022 alone the Reserve Bank raised borrowing costs by 350 basis points or 3.5%.