February consumer inflation increases in line with higher insurance costs
• According to Stats SA, consumer prices ticked marginally higher to 4.6% y/y in February 2020, after jumping to 4.5% in January. This outcome was higher than the median Bloomberg market expectation of an unchanged outcome of a 4.5% y/y increase. On a monthly basis, inflation quickened by 1%.
• The uptick in inflation was mainly rooted in the consumer price index (CPI) for miscellaneous goods and services, which accelerated to 6.3% y/y (5.7% previously) and added a full percentage point (ppt) to headline CPI. CPI for personal care perked up by 2.3% y/y from 1.7% previously. Furthermore, the February 2020 survey for medical aid and private healthcare costs revealed a jump in insurance inflation to 7.7% y/y (7.1% previously) – the highest level in two years. It is worth noting that CPI for personal care and insurance make up 81% of the miscellaneous goods and services basket. It follows that the higher insurance CPI nudged core inflation to a higher 3.8% y/y from 3.7% previously.
• CPI for food and non-alcoholic beverages also surprised to the upside, coming in at 4.2% y/y from 3.7% previously. The contribution to headline CPI was 0.7ppt, from 0.6% previously. Within the food basket, meaningful rises were registered for meat (4.1% y/y in February from 2.4% previously), dairy (3.3% from 3%) and vegetables (2.7% from 1.1%) CPI. These subcategories collectively account for just over 60% of the food basket. For meat CPI, in particular, the jump is partly a reflection of the supply imbalance that was caused by the ban on live animal auctions as a result of foot-and-mouth disease. We expect this effect to continue waning as the bans have been lifted.
• On the other hand, there was a slowdown in transport CPI to 6.2% y/y from 6.4% in January. This was in spite of the acceleration in vehicle purchase prices and higher domestic fuel prices. Although the February prices of 95 octane unleaded petrol (-13 c/l) and 0.05% sulphur diesel (-5 c/l) were softer on a monthly basis, they remained significantly higher compared to a year ago (by 13.9% and 11.3% y/y respectively).
• Looking ahead, we still expect headline CPI to remain below the SARB’s 4.5% midpoint in 2020 amid persistently weak demand. The deterioration in the domestic growth outlook has further narrowed the scope for businesses to pass on price increases. Furthermore, international oil prices have collapsed amid excess supplies and a worsening outlook for global growth amid the Covid-19 outbreak. Against this backdrop, the scope for the SARB to cut interest rates more aggressively than initially thought continues to widen.
