Inflation accelerates after fuel price hike
Another fuel price hike in March led to inflation reaching the midpoint of the Reserve Bank’s 3%-6% target range.
Inflation, as measured by the annual change in the consumer price index (CPI), accelerated to 4.5% in March from February’s 4.1%. This was slightly below a poll by Trading Economics, which expected inflation to rise to 4.6%.
The rise in inflation was based on a 6.4% increase in alcoholic beverages and tobacco; a 4.5% increase in housing and utilities; and a 6.4% increase in transport. Although overall food inflation was 2.3% in January, Stats SA said vegetable prices showed an alarming annual inflation rate of 9.4% and fruit 7.6%.
After a reprieve at the end of 2018 and in January, fuel prices rose again in February. March saw a steep increase of 74c/l as a result of an increase in oil prices. The fuel component increased by 8.8% compared with the same period in 2018 and by 5.1% compared with February.
The rising price of Brent oil and a weaker exchange rate will lead to further fuel price increases in the coming months, NKC economist Jacques Nel said. “Higher fuel prices over the short term, as well as higher electricity and food prices towards mid-year, are likely to drive consumer inflation gradually higher.”
Motorists got their steepest increase at the pump in four years in April while a hike in government levies also took effect at the beginning of the month. Despite this, inflation remains under control at both a headline as well as a core level, Stanlib chief economist Kevin Lings said.
The Reserve Bank expects inflation to average 4.8% in 2019, slightly above 4.5%.
“Consumer inflation probably reached its trough in January and will gradually increase in the next few months.
“However, it will remain below 5% for most of the year, contained by weak demand conditions and moderate food price increases,” Nedbank economist Busisiwe Radebe said. The annual change in CPI is the key measure used by the Reserve Bank’s monetary policy committee to set interest rates.
The committee is scheduled to announce its next decision on May 23. The Bank has made it clear that it would prefer inflation expectations at the 4.5% mark. Analysts say the relatively contained inflation outlook and the weak economy will convince the Reserve Bank to keep interest rates unchanged.”
Although the South African economy remains extremely weak, which argues for a possible interest rate cut, the current upward drift in SA inflation, supports the view that the Reserve Bank can afford to leave interest rates unchanged during 2019,” Lings said.
Economic growth will likely be lower because of power cuts earlier in 2019, and demand pressure on prices remains low, said Radebe. This will convince the committee to only resume a tightening cycle in 2020 on expectations of higher inflation.
AFTER A REPRIEVE FOR MOTORISTS AT THE END OF 2018 AND IN JANUARY, FUEL PRICES HAVE STARTED TO RISE AGAIN