The cost of living in South Africa will remain elevated for a prolonged period after inflation in February rose for the first time in four months due to costs incurred by retailers to mitigate load shedding.
As a result, the South African Reserve Bank (SARB) is now set to add more pain and increase interest rates by 25 basis points to 7.5% next week to contain rising consumer prices.
Data from Statistics South Africa (Stats SA) yesterday showed that the annual headline consumer price inflation (CPI) edged to 7.0% in February from 6.9% in January, mainly driven by food and non-alcoholic beverages, and transport.
This was the first time that inflation had risen since October last year, going against market expectation that it would remain steady at 6.9%.
Stats SA chief director for price statistics Patrick Kelly said the prices for food and non-alcoholic beverages increased by 13.6% over the past 12 months, the highest since April 2009, up from 13.4% recorded in January.
“Maize meal, an important staple, continues to see high rates of inflation. Its price index increased by 2.2% between January and February, taking the annual rate to 34.7%,” Kelly said.
“Meat inflation continues to accelerate, reaching 11.4% in February from 11.2% in January. This is the highest annual increase for meat since February 2018.
“Prices for milk, eggs and cheese increased by 12.3% in the 12 months to February, up from 10.9% in January.
“Annual inflation for the oils and fats category slowed for a sixth consecutive month, edging lower to 16.7%, the lowest reading since April 2021.”
On a monthly basis, consumer prices were up by 0.7%, the most in seven months, following a 0.1% decrease in January.
The annual core inflation, which excludes prices of food, non-alcoholic beverages, fuel and energy, picked up to 5.2% in February, the highest since February 2017, from 4.9% in January.
Analysts have noted that high input costs for agriculture placed a drag on the sector, while self-generation electricity costs to meet the impact of load shedding were an additional factor.
Investec chief economist Annabel Bishop said that upwards pressure came from domestic price pressures, with international food prices dropping marginally.
Bishop said restaurants and hotels reflected higher costs, contributing 0.1% to the overall CPI month-on-month, with self-generation of electricity necessary for these businesses.
“SA’s food price inflation, the largest component of the CPI basket, is likely to remain elevated, which along with load shedding and rand weakness is impeding inflation descent domestically,” Bishop said.
“Load shedding has become a significant cost factor in the domestic economy, adding to CPI inflation, and a key reason why the inflation rate came out higher than consensus of 6.8% year-on-year in February.”
Last week, a survey by the Bureau for Economic Research showed that the average inflation expectations for 2023 and 2024 increased by 0.2 percentage points, averaging 6.3% in 2023 and 5.8% in 2024, before it subsides to 5.5% in 2025.
Nedbank economist Johannes Khosa yesterday concurred that risks to the inflation outlook remained to the upside due to rising input costs – including the cost of generating electricity from diesel amid persistent load shedding, unpredictable weather patterns and a vulnerable rand.
Khosa said that, in their opinion, yesterday’s inflation numbers sealed the deal on another 25 basis-point rate hike next week by the SARB’s Monetary Policy Committee (MPC).
“The MPC will be concerned by the continued acceleration in food prices, which appears to reflect the adverse impact of load shedding on production costs. The MPC will also be alarmed by the acceleration in core and services inflation, which suggest broadening price pressures,” Khosa said.
“While the upside risks remain considerable, we still expect inflation to dip below 5% by the end of the year as the economy slows down to a crawl. At this stage, we see the first cut in the cycle at the November meeting.”
BUSINESS REPORT