CONSUMER prices in South Africa will not be slowing down any time soon as headline inflation showed no signs of decelerating in February due to rising food and oil prices.
Data from Statistics South Africa (StatsSA) yesterday, showed that the annual consumer inflation (CPI) held steady at 5.7 percent in February, unchanged from January.
StatsSA said the annual food and non-alcoholic beverages inflation rose for the third month in a row in February, with the rate increasing to 6.4 percent from 5.7 percent in January.
StatsSA director of CPI Lekau Ranoto said food inflation was driven primarily by grain-based products such as breads and cereals, and meat, which make up the bulk of the food basket.
Maize meal, white bread and fish registered large price increases in February.
In rand terms, a loaf of white bread was on average 69 cents more expensive in February than in January, up to R16.16 from R15.47 a month before.
“After decreasing steadily for eight months, annual bread and cereals inflation jumped to 3.7 percent in February from 1.5 percent in January,” Ranoto said.
“Prices climbed by 2.4 percent, representing the biggest monthly increase for this category since the beginning of 2019.”
Fuel prices also increased by 2.9 percent in February after softening in January.
The price of inland 95-octane petrol climbed by 53 cents from January to reach R20.14 per litre, shy of the record high of R20.29 reached in December.
This February inflation print largely reflected the surge in grain prices as supply remains constrained following the war between Russia and Ukraine.
However, Investec chief economist Annabel Bishop said South Africa was already showing high food and fuel price inflation before the Russian/Ukraine war began on February 24.
“Consequently, the full effects of the war’s impact on oil and so fuel prices will only come through in April,” Bishop said.
“So too international food prices climbed by 12.3 percent month-on-month in the final February reading, which will impact March and April’s domestic food costs.”
On a monthly basis, inflation increased by 0.6 percent between January and February.
Annual core inflation, however, remained steady at 3.5 percent in February, still suggestive of a slow economic recovery.
Upside risks to the inflation outlook are forecast to result in prices hovering above the 4.5 percent midpoint of the target range throughout the year, breaching the 6 percent upper limit in some months.
Nedbank economist Candice Reddy said the risks to the inflation outlook had increased tremendously as the ongoing war between Russia and Ukraine had exacerbated the supply-demand imbalances, particularly for certain food and energy commodities.
“Given these two economies’ dominance in the world market, the duration and severity of the conflict will determine the extent of price pressures,” Reddy said.
“(Rising Covid-19 cases in China), combined with the impacts of the war, will probably worsen and prolong supply chain bottlenecks, placing further upward pressure on prices.”
The US Federal Reserve hiked rates last week, with the possibility of a more aggressive tightening of monetary policy in the months ahead.
The South African Reserve Bank (SARB) is also expected to be hawkish and continue increasing interest rates, probably faster than previously expected to slow the inflation rate.
BNP Paribas South Africa yesterday revised upwards its inflation forecast, saying it now saw scope for inflation to average 6.5 percent in 2022, up from our prior 6.0 percent estimate.
BNP senior economist Jeffrey Schultz said the SARB could be more aggressive later in the year to counter the risk of more problematic inflation expectations.
“While we don’t (yet) see the SARB raising rates by 50 basis points this meeting, front-loading more aggressive rate hikes in coming meetings could well become the strategy as the SARB looks to nip inflation expectations in the bud,” he said.
BUSINESS REPORT ONLINE