The cost of living in South Africa could start easing slightly in the next few months as consumer prices moderated to a 11-month low in April driven by easing but elevated prices for food, non-alcoholic beverages and fuel.
However, the cost of borrowing might remain elevated for longer as heightened levels of load shedding could force retailers to increase prices again, in spite of the expected fuel price cut in June.
Data from Statistics South Africa (Stats SA) yesterday showed that the annual consumer price inflation (CPI) softened to 6.8% in April from 7.1% in March.
This April inflation reading was the lowest since May 2022, when the rate was 6.5%.
It was also below market forecasts of 7%, driven by slowing meat, oils, and fats, and fuel prices.
StatsSA chief director for price statistics Patrick Kelly said transport recorded its ninth successive month of disinflation in April, softening to 7.6% mainly due to the annual rate for fuel easing to 5.0% – the lowest reading since March 2021.
Kelly said the annual inflation for food and non-alcoholic beverages remained elevated, but decelerated to 13.9% in April from 14.0% in March as prices for meat slowed for a second consecutive month, cooling to 9.5% from 10.6% in March.
“Inflation for oils and fats slowed for an eighth consecutive month, tumbling from 16.0% in March to 9.9% in April. The last time this rate was in single-digit territory was November 2020,” Kelly said.
“(However), the bread and cereals price index increased by 20.8% in the 12 months to April, slightly higher than March’s reading of 20.3%, but lower than the recent peak of 21.8% recorded in January.”
The milk, eggs and cheese product group recorded an annual price increase of 14.5%, the largest rise in 14 years since January 2009, while vegetables were 23.1% more expensive, the highest annual rate since November 2007.
The annual inflation for non-alcoholic beverages was 10.4% in April, the highest rate since January 2010, driven by ground coffee or beans, instant coffee, dairy blends and fruit juices.
On a monthly basis, consumer prices were up by 0.4% in April, slowing from a 1% rise in March and slightly below market estimates of a 0.5% increase.
Analysts are now forecasting inflation to continue trending lower off a higher base in the coming months benefiting from lower fuel prices, but the weakness of the rand and intensified load shedding could contribute to its stickiness.
Nedbank economist Johannes Khosa said food inflation had probably peaked and should also began trending down, helped by the moderation in global food prices and higher local crop production due to favourable weather conditions.
However, Khosa said there were risks that inflation could recede at a slower pace than expected.
“The biggest concern is the rand, which could remain under pressure given volatile global risk sentiment and unfavourable domestic factors, including worries about persistent load shedding, poor growth prospects and political noises ahead of the 2024 elections,” Khosa said.
“This will limit the benefits of lower global commodity prices. Production costs will also rise as persistent load shedding is forcing companies to generate power from diesel, and forcing the producers to continue passing part of the cost pressures onto consumers.”
The annual core inflation, which excludes prices of food, non-alcoholic beverages, fuel and energy, rose to an over six-year high of 5.3% in April, up from 5.2% in the prior month, in line with market forecasts.
Headline consumer inflation is now forecast to average around 6% this year.
Although the April inflation print was tiny, it has given hope that the SA Reserve Bank (SARB) will start tapering interest rates in the second half of the year when inflation drops within the 3-6% target range.
Sanlam Investments’ chief economist, Arthur Kamp, said it seemed an additional interest rate hike was needed to anchor inflation expectations and guide inflation towards the SARB’s mid-point target range of 4.5% over the medium term.
“Therefore, it seems likely the bank will increase its repo rate once again this week, we think by up to 50 basis points,” Kamp said.
“Looking further ahead, if inflation behaves as expected through the remainder of 2023 and into 2024, we think this week’s interest rate hike could be the last in the current cycle.”
BUSINESS REPORT