PPS Investments: CPI for December 2022

Consumer price inflation increased by 7.2% year-on-year in December 2022, lower than the 7.4% year-on-year print in the previous month.

Inflation has averaged 6.9% for calendar year 2022 to date which remains above the top end of the target band and was 2.4% higher than the 4.5% average recorded for 2021. Month-on-month inflation increased by 0.4%, compared to the 0.3% increase in November.

For the first time since January 2022, transport was not the largest contributor to year-on-year inflation, even though it did provide a notable contribution. The largest contributor to inflation was food and non-alcoholic beverage (2.1%), followed by transport (2.0%) with housing and utilities being the only other sector with a 1% or greater contribution. Once again, all 11 inflation groups were positive contributors highlighting the widespread nature of current inflation. On a sub-group level food increased by 12.7% over the year, with fuel up 22.8 and public transport up 16.7%, all of which carry sizable weights in the average consumer basket. Although not evident in the current inflation print, an 18.6% electricity price increase has been approved for later in 2023, which will have a direct effect on inflation once implemented.

During 2022 the prime interest rate increased from 7.25% to 10.5% signalling a 3.25% increase in short term interest rates. Although the South African Reserve Bank was ahead of the curve in starting the hiking cycle it could not prevent inflation heading above the top end of the target band and averaging well above the band for the calendar year. The Reserve Bank governor remains hawkish in his rhetoric with the aim to bring inflation back to the midpoint of the target band. Even though inflation has printed lower this month it seems likely that the hiking cycle has not yet fully played out.