Sun, 26 Sep 2021

  • SA's consumer inflation rate for June was 4.9%, from 5.2% in May.
  • Food and transport prices remained elevated, but inflation could moderate in coming months.
  • Due to the devastating effect of the riots, the monetary policy committee may be less hawkish for a while, an economist says.

The annual consumer price inflation subsided to 4.9% in June, down from 5.2% in May 2021, Statistics SA announced on Wednesday.

From May to June, consumer inflation increased by 0.2%.

 Source: Statistics SA

There was a 7% increase in food prices from June 2020 to June 2021, with meat prices up by 8.6% due to supply shortages and increasing input costs, says Johann van Tonder, economist at Momentum Investments. Vegetable oil rocketed by almost 22% over the past year, but lower international prices should put pressure on local prices, he added.

Transport prices increased by more than 12% in the year to June. This was due to a sharp increase in fuel prices compared to the same time last year, when oil tanked amid hard lockdowns across the world. The abnormally low fuel prices during the first half of 2020 established a very low base for prices - pushing recent inflation numbers higher, a so-called "base effect".

Van Tonder expects a "near-term moderation" in headline inflation due to diminishing base effects and slower increases in international commodity prices, such as oil, which should reduce the pressure of fuel prices on headline CPI.

"The combined effect of a low base and higher oil prices had been a driving force of increasing headline CPI. It contributed more than 33% of the increase in May's headline CPI. Its contribution decreased to 26% of June's CPI and is projected to decline to around 15% of July's CPI."

Van Tonder says it's difficult to quantify what the effect of the recent riots may be on South Africa's inflation rate.

"At this stage it seems as if food, clothing, household appliances and pharmaceuticals were most affected by the riots. The magnitude of the effect on CPI will to a large degree depend on how supply management and recovery [are] handled."

Government gave companies the green light to cooperate outside the bounds of the Competition Act to restore the availability of goods as soon as possible, while the state-owned South African Special Risk Insurance Association (Sasria) - the only insurer that covers claims caused by civil unrest - has been urged to deal speedily with claims.

"The effect on CPI could therefore be limited, if handled well," Van Tonder says, adding that the Monetary Policy Committee - which meets on Thursday to decide on interest rates - will, for now, disregard the effect of the riots on near-term CPI.

"As such, it is plausible that the MPC may, given the devastating effects of the riots on the economic recovery, consider less hawkishness for a while."

Source: News24

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