Consumer inflation moderated as expected in January, when motorists received some relief from record fuel prices.
However, economists expect consumer prices to rise after a threat of military conflict between Russia and Ukraine pushed international oil prices to seven-year highs.
“The month to date under-recovery on the petrol and diesel prices signal hefty increases to be implemented early in March, in the order of R1.20-R1.40 a litre,” said independent economist Elize Kruger.
“This will exert upward pressure on headline inflation, but could also increase the risk of second round effects — a phenomena where general price increases occur given that fuel as an input cost result in higher production cost and thus lead to even higher overall inflation.”
Inflation, as measured by the annual change in the consumer price index (CPI), slowed to 5.7% in January from 5.9% the month before, Stats SA said on Wednesday.
Economists polled by Bloomberg had expected inflation of 5.7% year on year and 0.2% month on month. Core inflation, which excludes volatile fuel and food components, also came in as expected at 3.5% year on year.
Surging energy prices and supply-chain disruptions have stoked inflation fears globally and pushed inflation to near the top of the SA Reserve Bank’s 3%-6% target band in December.
The Central Energy Fund implemented a 68c/l cut in the petrol price and a 67.8c/l decrease in the diesel price at the beginning of January.
“The recent surge in oil prices reflects concerns that the tensions between Russia and Ukraine could potentially disrupt oil supplies, aggravating existing demand-supply mismatches,” Nedbank economists said in a note.
“At the same time, China’s zero-tolerance approach to recent Covid-19 outbreaks could prolong supply-chain bottlenecks, potentially fuelling freight and other transport costs even further. The rand could also come under pressure once the US Fed tightens its monetary policy.”
Meanwhile, retail sales were better than expected in December, pointing to the recovery in the sector that was dealt a heavy blow by the lockdown restrictions to fend off the Covid-19 pandemic.
Retail sales rose to an annual rate of 3.1% in December from the same period a year ago, prompting consumers to shop around and boosting retailers in textiles, clothing and footwear, and leather goods, in particular.
Economists had forecast a 2.6% increase, according to the median estimate in a Bloomberg survey.
For 2021 as whole, sales rose 6.4% year on year, reflecting a recovery in the trading environment for retailers after a dreadful year in 2020, when sales contracted 7.1%.
All seven types of retailers showed positive year-on-year growth rates over the period.
Transport increased by 14,5% year on year, and contributed 1.9 percentage points, still the biggest contributor to the headline figure, but down from 2.3 percentage points in December.
Food and nonalcoholic beverages increased by 5,7% year on year, and contributed one percentage point, while housing and utilities increased by 4.3% year on year, and contributed 1.1 percentage points.
Update: February 16 2021
The story has been updated with more information, including economist’s commentary.
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