Annual consumer price inflation remained unchanged in April at 5.9%, marking the 12th consecutive month in which annual inflation has been higher than the midpoint of the Reserve Bank’s 3%-6% target range.
The last time headline inflation was above the target range was five years ago in March 2017 when the rate was 6.1%.
Stats SA on Wednesday said the main contributors to the inflation rate were food and nonalcoholic beverages; housing and utilities; transport; and miscellaneous goods and services.
Fuel prices continued to cause pain in April 2022, increasing by 2.2% between March and April to reach record highs.
“Fuel is 29.2% more expensive than a year ago,” Stats SA said.
Rising food and fuel prices are expected to have spillover effects on wage and social demands as households seek to be compensated for the rising cost of living that is in line with inflation expectations.
The agency said food and non-alcoholic beverages increased by 6.0% year on year, and contributed 1.0 percentage point to the total CPI annual rate of 5.9%. Thalia Petousis, portfolio manager at Allan Gray, told Business Day the most concerning issue in terms of inflation is food prices, both locally and internationally.
“We have already seen the return of some elements of food rationing — most notably in sunflower oil — to deal with supply chain shortages. In the UK and parts of Europe, store shelves are increasingly light, and retail suppliers have begun to apply force majeure to major food retailers, scrapping contracts in an unprecedented fashion.
“The alternative for these suppliers is financial ruin,” Petousis said. Moody’s forecasts SA inflation will rise to almost 8% this year while Investec predicts a 6.3% average.
The market consensus is at 6.2%, well above the Reserve Bank’s 3%-6% target range, which policymakers expect to be breached in the second quarter of 2022, before returning towards the midpoint in 2023.
Africa head at Oxford Economics Jacques Nel said higher international food prices will have a more drastic effect on African and SA CPI readings than those in advanced economies. He said this is due to heavier weightings of foodstuffs in CPI baskets.
“But the impact will extend far beyond headline CPI prints. Calls for subsidies will either be heeded, putting pressure on the fiscus, or disregarded, resulting in social discontent,” Nel said.
Food prices have trended higher over the past two years, and the war in Ukraine has exacerbated this trend. While the cost of essentials has increased in SA, the struggle with unemployment rates is much higher than pre-pandemic levels.
“This creates an environment vulnerable to unrest as fewer incomes are available to pay for more expensive essentials,” he said.
Headline CPI inflation was in line with the Thomson Reuters consensus at 5.9% year-on-year in April, unchanged from March and 0.1 percentage point higher than forecast. Core CPI inflation increased slightly by 0.1 to 3.9%, higher than forecasts of 3.7% and consensus of 3.8%.
Miyelani Maluleke, senior economist at Absa, said the rise in core CPI was relatively broad-based.
“Looking ahead, current recovery rates on petrol and diesel point to a much larger increase in fuel prices than we previously expected,” Maluleke said. “With no indication of the government extending its R1.50/l fuel levy reduction beyond May, fuel prices are set to rise by a staggering 16.0% in June.”
As a result, Absa now sees headline CPI inflation rising to a peak of 6.9%, previously forecast 6.2%. He added that the inflation rate will remain above the upper limit of the target range for four quarters.
Absa expects a 25 basis points hike — against the 50 consensus — on Thursday, “but risks of a 50 basis points move are elevated. Moreover, a sustained upside breach of the target range skews the risks towards an even more front-loaded hiking cycle,” he said.
Meanwhile, SA retail sales in March rebounded from a contraction in February reflecting a normalisation in economic activity.
Stats SA reported on Wednesday that SA retail trade rose by 1.3% year on year, compared with a 0.9% fall in the previous month but came in lower than market estimates of a 1.5% increase.
The largest positive annual growth rates were recorded for sales of pharmaceuticals and medical goods, cosmetics and toiletries, household furniture, appliances and equipment and all other retailers.
On a monthly basis, retail trade went down 0.3%, after an upwardly revised 2% decline in the previous month
Nedbank said it expected retail activity to rebound by 2.8% in March from a 0.9% contraction a month earlier, while Absa’s estimates came in lower at 0.9%
The rising interest rates, higher costs of living and generally low consumer confidence were reasons given for the lower estimates.
Isana Cordier, head of consumer goods and services sector coverage at Absa told Business Day SA consumers were still recovering from the effect of lockdowns. Cordier said it will become even more difficult for the majority of consumers, especially because of the compounding effect of the interest rate hikes as well as increasing fuel and energy prices.
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