Statistics South Africa has published its Consumer Price Index (CPI) for October 2021, with inflation unchanged at 5% compared to September.
This is the sixth consecutive month where the annual increase is higher than the midpoint (4.5%) of the South African Reserve Bank’s monetary policy target range.
Food and transport costs are the most significant contributors to both the annual and monthly rates, with the transport index jumping by 10.9% in October 2021 compared with a year ago.
This rise was mainly the result of high fuel prices that registered an increase of 23.1%. Rising vehicle prices also contributed to transport inflation, up by 5.1% over the same period and by 1% compared with September 2021. By comparison, the average annual increase for vehicle prices was 3% from 2009 to 2019.
The dispersion of inflation in the consumer basket remained low in the October inflation release. Only three out of the 28 inflation categories experienced inflation in excess of 6%. These categories included food, private transport and electricity.
Some of the largest annual price increases (October 2020 vs October 2021) were recorded for the following goods and services:
- Fuel: +23.1%
- Oils and fats: +20.9%
- Electricity and other fuels: +14%
- Meat: +9.1%
- Wine: +6.9%
- Public transport: +6%
These CPI figures could be a deciding factor in South Africa’s next rates decision, scheduled for Thursday (18 November).
The implied policy rate path of the Reserve Bank’s quarterly projection model, which it uses as a guide, indicates a 25-basis point increase in the final quarter of this year and in every quarter of 2022 and 2023.
Of 20 economists in a Bloomberg survey, 11 predict a quarter-point increase in the benchmark this week, while the remainder see no change.
Forward-rate agreements, used to speculate on borrowing costs, signal traders are pricing in about a 70% chance the rate will be raised to 3.75% on Thursday and suggest the central bank will unwind the unprecedented stimulus it’s provided since 2020 within two years, Bloomberg said.
“In our view, contained inflation and longer-dated inflation expectations, which remain close to the midpoint of the target band, could allow the SA Reserve Bank (SARB) to stave off rate hikes until the first quarter of 2022,” said Sanisha Packirisamy, an economist at Momentum Investments
“We believe the medium-term profile for inflation should afford the SARB additional time before commencing the interest rate normalisation cycle and adhere to our view for the first interest rate hike to take place in the first quarter of 2022. Nevertheless, we acknowledge that risks to an earlier (November 2021) hike have increased.
“In light of higher short-term inflation pressures resulting from food and fuel, the SARB may opt to act pre-emptively to keep inflation expectations anchored.”
While the Central Energy Fund (CEF) has not published its mid-month data at writing, the further weakening of the rand and high international oil prices in November mean that South Africans are likely to continue paying record-high prices for petrol.
Projections from FNB paint a bleak picture for the coming months, with Chantal Marx, head of Investment Research at FNB Wealth and Investments, projecting double-digit inflation for fuel prices to persist until at least March 2022.
The primary pressure on local fuel prices has been a sharp increase in Brent crude oil prices over the past few months. These prices were driven up by natural gas shortages in Europe and Asia just as the northern hemisphere entered winter. Marx said she sees the current R19.54 price for 95 unleaded as the peak, but risks are to the upside.
“Fuel inflation rose 23.1% year-on-year (y/y), after factoring in a 1c/l dip in 95 petrol – inland – but is expected to rise into year-end on a weaker local currency and higher international oil prices, amid a global energy crunch. “said Packirisamy.
Annual food inflation was 6.1% in October 2021, lower than the rates recorded in September (6.6%) and August (6.9%).
On a monthly basis, food and non-alcoholic beverage prices increased by 0.9%. This is the biggest monthly rise since April, but is lower than the recent peak recorded in October 2020 (1.4%), StatsSA said.
White and brown bread registered price increases. A loaf of brown bread, for example, was on average 36 cents more expensive in October compared with September, increasing to R13.59, from R13.23.
Annual meat inflation hit a three-month low of 9.1% in October. Of all the meat products in the inflation basket, polony recorded the highest annual rate (16.1%). Frozen chicken pieces were up 13% over the same period.
Oils & fats recorded an annual rate of 20.9%, representing the sixth consecutive month with the rate above (or at) 20%. The monthly rise was 1.7%, the highest since May 2021 (5.2%). The products that recorded the biggest increases were margarine spread (in a tub), brick margarine and peanut butter.
Vegetable price changes are typically volatile as they are heavily influenced by seasonal patterns and weather conditions, StatsSA said. Vegetable prices increased by 7.2% in the 12 months to October 2021, with potatoes the most significant contributor to this rise – up 19.1%.
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