At 4.4%, inflation falls to lowest in five years

SOUTH Africa’s core inflation in November registered its lowest rate since May 2012, printing at 4.4 percent, while the headline inflation consumer price index (CPI) eased from 4.8 percent in October to 4.6 percent year-onyear last month.

The annual core inflation rate – which excludes the cost of food, non-alcoholic beverages, fuel and energy – declined to 4.4 percent last month from 4.5 percent in October and below market expectations of 4.5 percent.

The core inflation has subsided from a peak of 5.9 percent in December last year.

The decline in headline inflation was in part supported by slower inflation in transport and non-alcoholic beverages in the period.

Kamilla Kaplan, an economist at Investec, said the main influencing factor on the CPI outcome was the lower fuel price increase relative to the prior month and relative to November last year.

“For the year as a whole, CPI inflation is estimated to average 5.3 percent year-onyear compared to 6.3 percent in 2016.

“However, for 2018 and 2019, we forecast CPI inflation to rise to 5.7 percent year-on-year and 5.8 percent year-on-year respectively, on a strengthening global cycle, a further lift in commodity prices and higher local administered tariffs,” Kaplan said.

Petrol and diesel prices rose by 4 cents and 23c a litre, respectively, last month versus the increases of 29c and 42c a litre in October. At its last monetary policy committee meeting last month, the SA Reserve Bank noted that the upside risks to the inflation outlook prevailed and in the main included the rand exchange rate, the pace of global monetary policy normalisation and electricity tariffs.

The statistics agency said food price inflation – a key driver of CPI inflation – continued to moderate last month to 5 percent year-on- year, from 5.3 percent year-on-year previously.

Senior economic analyst at FNB, Jason Muscat, said yesterday’s print was indicative of very weak domestic demand, but he did not change his view that rates would remain flat for most of next year.

“The National Energy Regulator of SA’s (Nersa) pronouncement on Friday regarding the tariff increase granted to Eskom will have a bearing on the outlook for next year, although we believe the CPI will be contained within the Reserve Bank’s target band for 2018,” Muscat added.

Eskom is asking Nersa for a 19.9 percent average increase in electricity tariffs for 2018/19 that will result in total allowable revenue of R219.5 billion.

In February, Nersa allowed Eskom to raise tariffs by 2.2 percent in the 2017/18 financial year.

John Ashbourne, an Africa economist at Capital Economics, said while inflation was now at the midpoint of the central bank’s target range hawkish statements suggested that the key rate would remain on hold next year.