Category Economy
SUB CATEGORIES General |  Budget 2017 |  Budget 2018 |  Budget 2019 |  Budget 2020 |  Budget 2021 | 

Inflation declines in February to 2.9% y-o-y

24 March 2021 Lullu Krugel, Chief Economist for PwC Strategy& Africa, and Dr Christie Viljoen, PwC Strategy& Economist

Consumers benefit from slowdown in medical insurance inflation

Statistics South Africa (Stats SA) reported on March 24 that consumer price inflation declined from 3.2% y-o-y in January 2021 to 2.9% y-o-y in February. The latest reading was slightly below expectations (3.0% y-o-y) and the lowest reading in eight months. It was also the third time over the past year that headline inflation fell below the bottom end of the South African Reserve Bank (SARB) target range (3%-6%). Overall, February’s inflation report continued to reflect a very favourable retail price environment for South African consumers hard hit by an economic recession.

The biggest driver of disinflation in February was easing price pressures in the “miscellaneous goods and services” basket. This category includes personal care, insurance, financial and other services. Insurance costs are not measured every month: in the case of medical insurance, observations are recorded in February and not in January. As such, the February inflation report reflected a favourable situation with regards to the cost of medical aid, with the ‘insurance’ basket costing only 4.1% y-o-y more. Several medical insurance providers did not implement annual price increases at the start of 2021. This was due to a significant change in healthcare consumption patterns last year resulting in an increase in their cash reserves.

Figure 1: Inflation nudges below SARB target in February

Sources: Stats SA, SARB

Looking ahead, the rate of inflation is expected to increase in the near-term, with the SARB forecasting in January that headline inflation will average 4.5% during the second quarter. Of course, this figure includes some substantial base effects from the disinflation seen during the April-June 2020 period. However, there are other risks to the price environment to keep in mind. As the central bank’s Monetary Policy Committee (MPC) commented during January, in the absence of demand side pressures on retail prices, electricity and other administered prices “remain of serious concern”. Indeed, the Gauteng High Court ruled in February that Eskom will be able to lift its tariffs by more than 15% this year.

The SARB MPC is currently meeting to discuss matters related to interest rates, with a press conference scheduled for 15:00 on Thursday to inform the nation about their deliberations. The prime lending rate has been at a level of 7.0% since July last year following a cumulative 300 bps reduction in support of the pandemic-hit economy. The easing in monetary policy during the first half of 2020 supported many businesses and households that were severely hit by lockdown restrictions and associated job losses.

Figure 2: MPC votes have been split 3:2 since September

Source: PwC calculations

The MPC commented in January that its internal modelling suggested a start to monetary policy tightening as soon as the second quarter of 2021. We found this to be unlikely: a 3:2 split in MPC votes in January - with two members seeking a rate cut and the other three preferring a ‘hold’ decision – suggests it is unlikely that the MPC will shift towards rate hikes so quickly. Furthermore, SARB Governor Lesetja Kganyago said in February that the SARB has scope to respond with further support should a third wave of COVID-19 infections hit South Africa this year.

All 15 analysts surveyed by Bloomberg last week indicated expectations that the MPC would keep lending rates on hold this week. Since their previous meeting, policymakers have considered the impact of Budget 2021 and GDP data for 2020Q4 on the outlook for the economy in 2021-2022. PwC is of the view that the fragile nature of the economic recovery will keep the SARB from lifting interest rates in the months ahead and quite possibly delay a start to policy normalisation until early in 2022. For now, inflation remains well under control, so that is the least of the SARB’s concerns.

Quick Polls


Financial behaviour experts suggest that today’s risk modelling methodologies ignore your client’s emotional ability / behavioural capacity. What are your thoughts on spicing up risk profiling tools to make allowance for your client’s financial behaviours


[a] Bring it on; my client’s make too many irrational financial decisions
[b] Existing risk profiling tools are adequate
[c] Risk profiling tools should be based on the model / rational client
[d] The perfect risk profiling tool is science fiction
fanews magazine
FAnews April 2021 Get the latest issue of FAnews

This month's headlines

Randsomware attacks... SA businesses' biggest risk
Know the difference - compliance vs ethics
Better business by virtue of Beethoven
The future of vaccines
Harmonisation of retirement funds
Call centres and the maze of auto-prompts
The next 18 to 24 months are going to be tough
Subscribe now