Transport, which has previously been the largest contributor to the headline rate, increased by 11.1% year-on-year and contributed 1.6 percentage points. Photo: (Delwyn Verasamy, M&G)
Consumer price inflation (CPI) fell again in January to 6.9% year-on-year, marking the third consecutive decline.
According to data from Statistics South Africa on Wednesday, the country’s inflation eased slightly from 7.2% in December. January’s decline was in line with consensus expectations.
The inflation rate is still, however, uncomfortably high by the South African Reserve Bank’s standards. The bank, which aims to keep the rate anchored at between 3% and 6%, has forecast that inflation will average 5.4% in 2023, down from 6.9% last year.
As expected, January’s inflation was driven mainly by food prices. According to the inflation print, food and non-alcoholic beverages increased by 13.4% year-on-year and contributed 2.3 percentage points to the total CPI annual rate.
Transport, which has previously been the largest contributor to the headline rate, increased by 11.1% year-on-year and contributed 1.6 percentage points. This is after South African drivers welcomed a significant drop in petrol and diesel prices in January.
Inflation has held above the midpoint of the Reserve Bank’s target range for 20 consecutive months. In July 2022, inflation rose to its highest rate since 2009, when the global economy was left reeling from the impact of the financial crisis.
The Reserve Bank has responded to elevated prices by raising interest rates eight times starting from November 2021, when its monetary policy committee (MPC) first greenlit lift-off from pandemic-era lows. At 7.25%, South Africa’s repo rate, which affects the cost of borrowing, is now 75 basis points higher than it was prior to the pandemic.
After its January meeting, where it announced a less aggressive than expected 25 basis point hike, the MPC signalled a more dovish tilt. This was as the Reserve Bank’s GDP forecasts presented a dire prognosis for the health of the country’s load-shedding-hit economy.
The bank forecast only 0.3% growth this year — down from the 1.1% forecast at the November meeting.
At the meeting, the bank predicted that load-shedding would shave 0.6 percentage points from growth in 2023. The bank now expects the economy to lose two percentage points of growth as a result of the energy crisis.
“Over the medium term, the forecast takes into account ongoing high levels of load-shedding and more modest household spending and investment growth than previously,” January’s MPC’s statement noted.
These factors, as well as declining commodity prices, resulted in the Reserve Bank halving its 2024 growth forecast to 0.7%, down from 1.4% previously. The bank now expects the domestic economy to grow by 1% in 2025, down from 1.5%.
Fuel price inflation, according to the Reserve Bank’s forecasts, is set to fall to -2.7% in 2023 (down from 0.7% expected previously). Fuel price inflation averaged 34.5% last year.
The Reserve Bank’s core inflation — which excludes fuel and food prices — forecast was also revised down, though only somewhat at 5.2% in 2023, compared to 5.5% previously.
However, electricity price and food price inflation in 2023 were revised higher.
Local electricity price inflation is now expected to come in at 12.9% in 2023, compared with 10.7% in 2022. Food price inflation is expected to be 7.3% in 2023, up from 6.2%. Local food inflation is expected to remain elevated, despite global prices continuing to ease, as a result of the lagged effect of the rand’s weakness.