Price trends in the spotlight

The focus this week will be on SA price trends with the release of the inflation expectations survey for quarter one released by the Bureau for Economic Research (BER) on Tuesday and the consumer price index by the Stats SA on Wednesday.

The data on prices comes a week ahead of the SA Reserve Bank’s rate announcement next Wednesday and is likely to be a factor in the monetary policy committee decision in future.

Inflation expectations for 2024 and 2025 increased by 0.2 percentage points to 5.7% and 0.3 percentage points to 5.6%, respectively, while five-yearahead expectations lifted to 5.2% from 5.1% previously.

FNB chief economist Mamello Matikinca-Ngwenya said in addition household expectations on medium-term inflation tilted upwards.

“This poses upside risk to the inflation trajectory and will be concerning to monetary policy,” Matikinca-Ngwenya said. “However, expectations for salary increases have edged lower, meaning that real wage growth expectations have softened, reducing prospects that higher inflation expectations will translate to wage and price pressures.”

ACCELERATED

Stats SA will publish consumer price inflation data for February on Wednesday.

The headline inflation rate rose to 5.3% in January from December’s 5.1% and above market forecasts of 5.4%. The outcome was above the Reserve Bank’s preferred 4.5% midpoint of the 3%-6% target range.

Core inflation, which excludes food and fuel prices, accelerated to a five-month high of 4.6% in January from 4.5% in December, slightly above market expectations of 4.5%. Stats SA data showed monthly consumer prices edged up 0.1% in January, after being flat in the previous month.

BER chief economist Lisette IJssel de Schepper said consumer price inflation was set to reaccelerate “quite a bit” in February. “We expect headline consumer inflation to peak at 5.7% in February, before slowly moderating towards the middle of the target band by the end of the year.”

She said various factors could introduce volatility or disruptions to this trajectory which would see the Reserve Bank continue emphasising the upside risks to inflation and its data dependence in making repo rate decisions. “More worrying than this temporary reacceleration in headline inflation is core inflation, which we expect to pick up to above 5% in February,” she said.

HEALTH INSURANCE

IJssel de Schepper said a driver of the higher inflation was medical health insurance after an increase by 6.9%-9.6% for 2024 by medical aids.

Nedbank senior economist Isaac Matshego said Nedbank forecast consumer inflation to have remained steady at 5.3% in February. Consumer prices were expected to have increased 0.7% from 0.1% month on month, mainly lifted by fuel prices, he said.

Wednesday will also see the release of trade sales data by Stats SA. Retail trade grew 2.7% from a year earlier in December 2023, after an upwardly revised 1% decrease in the previous month l. The outcome followed two months of declines and marked the strongest increase in retail activity since July 2022.

Matshego said the continued weakness in retail sales reflected tight conditions as consumers faced high interest rates, elevated food inflation and deteriorating sentiment.

Matikinca-Ngwenya said muted shopping activity at the end of 2023 was consistent with sentiment indicators in consumer facing sectors, which predicted weakening demand into the festive season.

Other data coming out this week is the BER retail survey on Monday. Retailer confidence recovered during the fourth quarter of 2023 increasing to 47 points from a three-year low of 20 in the second quarter and 32 during the third quarter.