Food prices push up inflation
CPI at 5.4 percent in May
SOUTH Africa’s headline Consumer Price Index (CPI) ticked up 0.1 percent year-on-year in May to 5.4 percent, driven largely by faster food inflation, according to figures released by Statistics SA.
Food inflation increased 0.6 percent to 7 percent. However, core inflation, which excludes food, non-alcoholic beverages, petrol and energy, was steady at 4.8 percent in May.
John Ashbourne, the Africa economist at Capital Economics, said it was important that inflation remained within the South Africa Reserve Bank’s target range of 6 percent.
“We do not expect that this brief increase in headline inflation will be sustained. An improved harvest should reduce food price inflation over the duration of this year.
“The inflationary effect of fuel prices will also probably fade. Consumer petrol prices actually dropped by 25c a litre between May and June,” Ashbourne said.
Macro-economics statistics website Trading Economics said the core inflation rate in South Africa averaged 5.17 percent from 2009 to 2017, reaching a high of 8.3 percent in May 2009 and a record low of 2.9 percent in January 2011.
The main contributor to the uptick in food inflation was meat prices, which rose 1.3 percent in May, but 12.3 percent annually, the highest meat price inflation rate in five years.
Only four categories in the food sector recorded price declines: bread and cereals, fish, and fruit and vegetables. The price of oils and fats remained unchanged.
Wandile Sihlobo, the agricultural economist at the Agricultural Business Chamber, said it was not surprising that meat prices had increased, because farmers were restocking their herds following the drought.
Sihlobo said farmers had slaughtered 193 373 head of cattle in April, down 19 percent from the previous month.
As farmers continued to restock their herds, slaughtering eased slightly, resulting in an increase in meat prices.
However, the expected recovery in the poultry sector could soften the rate of increase in meat inflation over the coming months, Sihlobo said.
On an annual basis, the increase in inflation stemmed mainly from housing and utilities, which rose 1.4 percent in May, but 5.7 percent year-onyear.
Food and non-alcoholic beverage inflation increased 1.2 percent monthly and 6.9 percent annually.
The inflation rate for miscellaneous goods and services increased 1.1 percent in May and 7.3 percent year-on-year.
Sanisha Packirisamy, an economist at MMI Investments, said although core inflation was expected to remain below 5 percent in the coming months, the lower rate of currency passthrough observed recently suggested that inflation might not experience the full benefit of previous rand strength.
“We are of the view that a favourable real interest rate outlook provides a limited opportunity to cut interest rates by 50 basis points, cumulatively, in the first half of 2018.
“However, should the rand depreciate more materially relative to our forecasts … on a sustained basis, such that it impacts inflation expectations negatively, the scope to cut interest rates from current levels would be significantly reduced,” Packirisamy said.
The Reserve Bank has been reluctant to cut its main repo rate from the current 7 percent, saying it first wanted to see a sustained decline in the inflation rate.
Battery chickens in a poultry farm in Cape Town. The expected recovery in the poultry sector could soften the rate of increase in meat inflation over the coming months.