Inflation fell in January to 6.9% and South Africa’s consumer price index was 0.1% compared to December, as fuel prices fell, but food prices continued to rise rapidly, registering 1.8% compared to December. Lower domestic fuel prices in early January helped, but food price inflation continued to accelerate. During the last year, the price of onion increased the most (48.7%), followed by corn flour (36.5%), cake flour (31.6%), samp (29.6%), bread flour (29.3 %), cauliflower (29.3%), instant coffee (26.4%), ice cream (24.6%) and pizza and pie (23.2%). Food and non-alcoholic beverages are one of the…
Inflation fell in January to 6.9% and South Africa’s consumer price index was 0.1% compared to December, as fuel prices fell, but food prices continued to rise rapidly, registering 1.8% compared to December.
Lower domestic fuel prices in early January helped, but food price inflation continued to accelerate.
During the last year, the price of onion increased the most (48.7%), followed by corn flour (36.5%), cake flour (31.6%), samp (29.6%), bread flour (29.3 %), cauliflower (29.3%), instant coffee (26.4%), ice cream (24.6%) and pizza and pie (23.2%).
Food and non-alcoholic beverages are one of the main contributors to the annual inflation rate, increasing by 13.4% and 2.3 percentage points. Inflation for food and non-alcoholic beverages is currently at 13.4% compared to January 2022, the highest level since April 2009 when it was 13.6% annually.
In addition, food price inflation averaged 9.2% in 2022 and due to high energy input costs, food price inflation is expected to remain elevated at 9.4% in 2023.
Economic research group, Oxford Economics Africa, said it was wary of sticky prices even as headline rates continued to cool. January inflation was below expectations of 7.1% compared to January last year, but in line with the consensus forecast of 6.9%.
Also read: Inflation rate drops for third time in January
Easing due to fuel prices
“Inflation eased by a larger-than-expected margin in January, as a 10% month-on-month drop in fuel prices offset rising food price pressures. However, petrol rose 1.3% in early February and diesel 0.4%, while depreciation the latest on the Rand shows a rise in fuel prices in March.
Although price pressure is easing, it is not happening all at once in the price basket, the group said.
“Annual headline inflation is likely to hover above the South African Reserve Bank’s (Sarb) inflation target band of 3%-6% until May 2023, after base effects should kick in and lower headline rates.”
The group said that a gradual moderation in prices is still the base case, which sees inflation averaging 5.8% in 2023 while previously around 6.0%.
“The latest drop in headline inflation could be enough evidence for the Sarb to keep the repo rate steady at the upcoming Monetary Policy Committee (MPC) meeting in March 2023.”
However, a weaker Rand and hawkish pressure from the US Federal Reserve could see MPC members vote to increase the final 25 basis points before the expected pause, Oxford Economics Africa said.
Also read: Annual consumer price inflation highest in 13 years
Another major contributor to inflation
Other major contributors to the annual inflation rate are housing and utilities which increased by 4.1% and contributed 1.0 percentage points, transport which increased by 11.1% and contributed 1.6 percentage points and various goods and services which increased by 4, 8% and contributed 0.7 percentage points.
Core inflation, which excludes volatile items such as food, non-alcoholic beverages, fuel and energy, remained stable at 4.9% compared to January 2022, while the latest data showed moderate goods inflation of 10.4% compared to January 2022 to 9.5%, while annual service inflation is unchanged at 4.3%.