Food price inflation has been evident, as it was also the main contributor to prices still rising in January when they rose to 13.8%. Photo: Provided
Inflation rose sharply in February, reaching 7% year-on-year, according to data released by Statistics South Africa on Wednesday.
Analysts expect inflation to continue to decline in the final month after falling to 6.9% in January, from 7.2% in December. The biggest driver in February, according to the data, was the price of food and non-alcoholic beverages, which rose 13.6% year-on-year – marking the highest reading since April 2009.
Food price inflation has been evident, as it was also the main contributor to prices still rising in January when they rose to 13.8%. In February, the increase was higher by 14%, on the back of bread and cereals, oil and fat and processed food prices.
In response to the January data, the Agricultural Business Chamber noted that the increase in bread and cereal prices reflects the continuation of the pass-through increase experienced by food producers during 2022.
The chamber also notes that production costs related to load shedding may not be fully accounted for in the January figure and will be reflected in the coming months.
Before the more severe shutdown period in December and January, the chamber expected consumer food price inflation to slow to between 5.5% and 6% in 2023, down from 9.5% in 2022. The chamber now expects this figure to be higher.
In January, the South African Reserve Bank’s monetary policy committee (MPC) estimated that food price inflation would be 7.3% in 2023, up from its previous expectation of 6.2%.
The MPC will meet again next week to decide whether South Africa’s ailing economy can withstand another rate hike. The Reserve Bank gave a forecast on the economic health of South Africa’s energy crisis at the latest MPC meeting, forecasting the economy to grow by just 0.3% in 2023.
The MPC lifted the repo rate by a more moderate 25 basis points (bps) at its January meeting, bringing the rate to 7.25%.
Although another rise in repo rates is out of the question given the state of South Africa’s economy – which contracted by 1.3% in the last quarter of 2022 – sticky inflation as well as recent rand weakness could force the MPC’s hand.
Analysts will also be keeping an eye on what the Federal Reserve does on Wednesday.
Data released last week showed an uptick in monthly core inflation in the US in January, which itself “will cemented an increase of 25 bps, if not swayed the odds to increase 50 bps”, the Bureau of Economic Research noted. However, the collapse of Silicon Valley Bank has changed the expectations of the Fed’s continued hawkishness.
Investors have set their expectations of a rate hike down to 25 basis points, the Nedbank economy noted this week, “after the turmoil in the banking sector clouded the landscape has been murky even more”.