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Inflation increases in February

20 March 2019 PwC

Price pressures set to rise in coming months

Statistics South Africa (StatsSA) reported on March 20th that consumer price inflation increased from 4.0% year-on-year (y-o-y) in January to 4.1% y-o-y in February. However, this increase was smaller than expected, with market expectations being closer to 4.3% y-o-y. The StatsSA report (available here) suggested to analysts that inflation during the first quarter of 2019 will likely average below the mid-point of the South African Reserve Bank (SARB) inflation target range (3%-6%).

The increase in headline y-o-y inflation during February was associated mainly with increases in inflation of transport and insurance. The cost of public transport increased by 0.6% month-on-month and was 8.9% y-o-y more expensive in February. A local transport advocacy group commented during the month that increasing costs associated with road travel is making it harder for South African job seekers to find employment. Related to vehicle operating costs, insurance costs (which are not measured each month) increased by 6.8% y-o-y in February.

Food price inflation was measured at a low 2.3% y-o-y in both January and February. One of the country’s largest retailers has reported that thousands of products on its shelves are currently cheaper compared to a year ago – most notably amongst basic food commodities. As an example, meat prices were on average 1.5% m-o-m and 0.5% y-o-y cheaper in February, associated with a ban on exports after foot-and-mouth disease broke out in Limpopo at the start of this year. In contrast, non-alcoholic beverages cost 8.6% y-o-y more in February.


Sources: StatsSA, SARB

However, following the easing in inflation at the start of 2019, several warning flags are pointing to an increase in price pressures over the coming months. For example, fuel prices will see an annual increase in taxes and levies in April of around 30clitre. Furthermore, electricity prices are increasing by 13.8% in July 2019. Food price inflation is likely to rise due to higher fuel and electricity costs as well as lingering drought conditions in certain parts of the country.

The SARB Monetary Policy Committee (MPC) is meeting on March 26-28 to review interest rates. The previous MPC statement indicated that, based on policy guidelines from the SARB’s Quarterly Projection Model moulded around January’s inflation outlook, interest rates could rise by a further 0.25 percentage points by the end of 2021. MPC members have not made any substantial statements in this regard over the past two months. A Reuters survey released on March 20th indicated that the majority of economists expect interest rates to remain on hold until the second quarter of 2020.



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