VAT and petrol price increase see consumer inflation rocket

South Africa’s consumer inflation jumped last month as a higher rate of value-added tax and a sharp increase in fuel prices wiped away the previous month’s dip in prices.

Headline consumer inflation quickened to 4.5% year-on-year in April from 3.8% in March, data from Statistics SA showed.

Economists had expected prices to quicken to 4.7% on a year-onyear basis following a 1% increase in value-added tax which came into effect on April 1.

Statistics SA said the increase was driven by higher taxes on specific products, part of government’s plan to boost falling revenues that have seen the budget deficit widen and raise the risk of credit ratings downgrades.

“Much of the increase was a result of price rises in product groups that attract specific taxes, namely alcohol, fuel and sugary drinks,” Stats SA said.

“Motorists in particular have felt the pain.”

The SA Reserve Bank, which sees inflation above 5% in the medium-term, is expected to keep interest rates unchanged at 6.5% at the conclusion of today’s policy meeting.

Bank governor Lesetja Kganyago said this month that while price-growth was under control, it is too early to declare victory in its pursuit to anchor inflation expectations at the midpoint of the 3%-6% target range. – Reuters