Inflation eases in South Africa – but not out of the woods yet

SOUTH Africa’s consumer price inflation was 7.2% in December 2022, down from 7.4% in November 2022 – with the average annual Consumer Price Index (CPI) figure for the whole of 2022 at 6.9%.

The main contributors to the 7.2% annual inflation rate for December were food and non-alcoholic beverages; housing and utilities; transport; and miscellaneous goods and services.

Food and non-alcoholic beverages increased by 12.4% year-on-year, contributing to 2.1 percentage points to the total CPI annual rate.

Housing and utilities increased by 4.1% year-on-year, and contributed 1.0 percentage point.

Transport increased by 13.9% year-on-year, and contributed 2.0 percentage points.

Miscellaneous goods and services increased by 4.9% year-on-year, and contributed 0.7 of a percentage point.

In December 2022, the annual inflation rate for goods was 10.1%, down from 10.4% in November; and for services it was 4.3%, down from 4.5% in November.

While the inflation rates for several items remain far outside the Reserve Bank’s target range of 3% to 6%, the latest data is a positive turn, showing a downward trend. This is particularly good news for food prices, which hit a 13% inflation rate in November.

Average annual consumer price inflation was 6,9% in 2022 (i.e. the average CPI for all urban areas for 2022 compared with that for 2021). This was 2.4 percentage points higher than the corresponding average of 4.5% in 2021.

Food and fuel prices still far exceed the targetted range for inflation.

Fuel is still sitting at the top of the list with an inflation rate of 22.8% in December, followed very closely by oils and fats at 22.4%.

However, elevated prices across all food categories persist. The following items in the inflation basket exceed the SARB’s targeted range:

Fuel: +22.8%
Oils and fats: +22.4%
Breads and cereals: +20.7%
Public transport: +16.7%
Package holidays: +16.3%
Processed food: +15.7%
Hot beverages: +14.6%
Other food: +13.1%
Unprocessed food: +12.7%
Vegetables: +12.5%
Fish: +10.4%
Milk, eggs and cheese: +10.0%
Meat: +9.7%
Personal care: +9.2%
Sugars, sweets and desserts: +9.1%
Hotels: +8.3%
Electricity and other fuels: +8.1%
Vehicle running costs: +7.9%
Restaurants: +7.8%
Spirits: +7.2%
Cold beverages: +6.9%
Beer: +6.8%
Appliances: +6.7%
Purchase of vehicles: +6.7%
The inflation number for December 2022 was in line with market expectations, not hiding any nasty shocks as was the case in previous months. Economists anticipate that inflation will continue to fall as the year progresses, with projections that headline inflation will be back within the SARB’s target band by the end of the year.

However, this is contingent on there being no more black swan events or other macroeconomic surprises that could upset this – such as the Russian invasion of Ukraine escalating.

South Africans will already have to contend with an upset that could drive inflation higher than projected through the 18.65% electricity tariff increase granted to Eskom by energy regulator Nersa this month.

The price hike will come into effect from 1 April 2023, affecting Eskom direct customers from that date. This includes municipalities.

Electricity users who get their power from municipalities, however, will likely suffer an even bigger increase as local governments and utilities add their own markup and rates to the figure and implement their price hikes from 1 July 2023.

According to Investec chief economist Annabel Bishop, the price hikes will only impact inflation numbers later in the year. By this time, a continued easing of global fuel and food prices should be reflected in local inflation – but the ultimate impact is that inflation will be kept higher for longer as a result.

This puts the SARB in the position of having to manage high inflation for longer, which increases the risk of more interest rate hikes or holding rates at the current levels for longer.

Analysts are already pencilling in room for another 75bp hike in 2023, with a 25bp-50bp hike likely in the SARB’s January meeting.

This also does not take into account the effects of persistent load shedding and the knock-on impact it has on production, supply chains, food prices and other critical aspects tied to the cost of living in South Africa.

A survey of economists by Bloomberg found that experts believe there is a 45% chance that South Africa will enter recession this year – driven by load shedding and the ongoing power crisis.

The economy is unlikely to grow by more than 0.3% quarter-on-quarter through 2023, according to Bloomberg’s survey. Economists see gross domestic product growth slowing to 1.2% this year from 2.3% in 2022.

According to the BER, South Africa’s power crisis is unlikely to let up in the short-term, and load shedding remains the single biggest downside risk and drag on South Africa’s growth prospects, the group said.

Source: BusinessTech

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