Inflation does not bode well for does not bode well for consumers or retailers

Jason Muscat, FNB Senior Industry Economist.

January 2016 inflation jumped to a worse than expected 6.2% y/y, up from December’s 5.2% y/y as the lower base of last year begins to take hold. The month-on-month number grew 0.8% in a clear sign that pass-through effects are accelerating.

Goods inflation registered 6.5%, the first time since 2014 that it breached 6%. Services inflation also reached the 6% mark, reflecting not only rand weakness, but also the growing inability of businesses to absorb these cost pressures. Food and transport costs in particular are driving the number higher, a trend we expect to continue given the drought, slightly higher oil prices and persistent currency weakness.

The number does not bode well for consumers or retailers, both of whom are already under pressure, and suggests that the SARB MPC may opt to again raise interest rates (likely by 25bps) at next month’s meeting.