CPI for December 2020

Consumer price inflation increased by 3.1% year-on-year as at the end of December 2020, which was marginally lower than the 3.2% year-on-year increase from the previous month. For the 2020 calendar year inflation averaged 3.3% which was 0.8% lower than the 4.1% average in 2019.

This marks a consistent average annual decline in inflation since the last time average inflation was above the top end of the target band for 2016. It also means that inflation was for 2020 and remains, at this time, firmly in the lower end of the target band. The contributions to inflation by all the subgroups remained unchanged year-on-year from November to December, except for the residual that reduced from -0.1% to -0.2%.

Month-on-month inflation increased by 0.2% in December 2020 after being unchanged in November. There were changes in contribution to month-on-month inflation in food and non-alcoholic beverages and the residual which was both up by 0.1%. All other groups showed no price increase over the month.

The impact of the COVID-19 pandemic and the most recent lockdown due to a second wave of infections remains the most important consideration in policy decision making. Even though there has been much spoken and written about the efficacy and rolling out of vaccines, it is still uncertain when a large enough proportion of the South African population will receive this vaccine. This makes planning, especially for those business directly affected by lockdowns, very uncertain. The most recent growth forecasts for South Africa have been underwhelming when compared to global expectations and in this backdrop, together with what appears to be sustained low inflation, it is hard to see why the Monetary Policy Committee will not further reduce short term interest rates.