PPS Investments: CPI for January 2023

Consumer price inflation increased by 6.9% year-on-year in January 2023, lower than the 7.2% year-on-year print in the previous month. This signals a continuation of the decline in inflation growth since the peak of 7.8% in July 2022. Month-on-month inflation increased by 0.1%, compared to the 0.4% increase in December.

Although there was a decline in inflation growth, consumers would be concerned by the 13.4% increase in food and non-alcoholic beverages and the 2.3% contribution to inflation. It means that even though food and non-alcoholic beverages make up 17.14% of the inflation basket the contribution was a third of the total inflation increase over the year. Other large contributors to inflation were transport (1.6%) and housing and utilities (1.0%). Then recent declines in fuel prices have moderated the effect of transport on overall inflation. Public transport however still saw an 18.0% increase as rising costs have been transferred to consumers. The effect of the approved electricity price increase is yet to be included in the inflation print and will add to inflation when it comes into effect.

The South African Reserve Bank has remained hawkish in its stance, which is justifiable with inflation above the top end of the target band. In the most recent Monetary Policy Committee meeting they decided to only increase short-term interest rates by 25 basis points, which may be seen as a signal that the hiking cycle is reaching an end. Markets are however pricing in another 25 basis point increase which could signal the end to rate hikes, assuming that inflation continues on its downward trajectory back into the target band.