New inflation data is bad news for food prices in South Africa


Statistics South Africa has released its most recent consumer price index, showing that annual consumer price inflation remains above the upper end of the Reserve Bank’s target range for the fourth consecutive month.

Annual consumer price inflation was 7.6% in August 2022against 7.8% in July 2022. The consumer price index rose by 0.2% month-on-month in August 2022.

The consensus among economists polled by Bloomberg was for a rate of 7.5%, while a more optimistic analysis from the Bureau of Economic Research held the rate at 7.3%.

A more positive view of the number is that annual inflation has fallen from the figure reported in July 2022, indicating that inflation could begin a downward trend, peaking as some economists had predicted.

However, the reality is that the percentage is still among the highest since May 2009 (8%) and that the main items in the basket that have the greatest impact on household budgets – food and fuel – are rising even higher.

The main contributors to the annual inflation rate of 7.6% were food and non-alcoholic beverages; housing and utilities; transport; and various goods and services.

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Foods and non-alcoholic beverages were up 11.3% year-over-year, contributing 1.9 percentage points to the overall annual CPI rate of 7.6%.

Housing and utilities were up 4% year-over-year, contributing 1.0 percentage point. Transport grew 21.2% year over year and contributed 2.9 percentage points. Miscellaneous goods and services were up 3.7% year-on-year, contributing 0.6 percentage points.

In August, annual inflation for goods was 10.9%, up from 11.5% in July; and for services it was 4.3%, up from 4.2% in July.

What costs more?

Inflation continues to be driven by rising food and fuel prices, with food inflation rising even higher in August at 11.5% (from 10.1% in July).

Oils and fats and bread and grains are again the biggest cause of higher food inflation. The former climbed higher to 37.6% (from 36.2% in July), while the latter rose to 17.8% (from 13.7% in July).

However, it’s almost the entire food basket that has seen higher inflation: vegetables, sweets, beverages, and both processed and unprocessed foods are all more expensive.

The only food categories that fell slightly are fish and meat products, but at 9.2% these remain well outside the target value.

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A similar argument is made for fuel inflation, which has declined to 43.2% (from 56.2% in July), but remains the highest item in the inflation basket.

High fuel inflation is having a knock-on effect on things like public transport costs, which also rose to 23.6% in August.

The list below shows which items are in the shopping cart above the August inflation rate and those which fall outside the target.

  • Fuel: +43.2%
  • Oils and fats: +37.6%
  • Public transport: +23.6%
  • Bread and cereals: +17.8%
  • Processed Foods: +14.9%
  • Warm drinks: +11.8%
  • Other food: +10.1%
  • Vegetables: +9.3%
  • Fish: +9.2%
  • Meat: +9.2%
  • Sugars, sweets and desserts: +9.2%
  • Raw food: +8.4%
  • Electricity and other fuels: +8.4%
  • ghosts: +8.1%
  • Cold drinks +7.1%
  • Restaurants: +7.0%
  • Other ongoing costs for transportation: +6.8%
  • Personal care: +6.1%

Impact on rates

The slight decline in inflation for August is unlikely to affect the rate hike cycle of the South African Reserve Bank’s Monetary Policy Committee, with most economists expecting a 50 basis point or 75 basis point increase for Thursday.

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The magnitude of the rate hike will depend on today’s announcement by the US Fed of its rate hikes, with most analysts saying a 75 basis point increase is virtually certain after weaker-than-expected inflation data released last week.

Concerns over unanchored inflation expectations and increased depreciation pressures on the fringe will likely make the SARB raise its key rate for a sixth consecutive meeting, said Sanisha Packirisamy, an economist at Momentum Investments.

Governor Lesetja Kganyago said in a recent interview that the central bank must do whatever it takes to ensure that price growth is under control and on a downward trajectory towards the 4.5% midpoint of the monetary policy committee’s inflation target range. Inflation has been above 4.5% since April 2021.

All economists polled by Bloomberg expect the MPC to raise its benchmark from 5.5% to 6.25%, which would be the first time it would raise interest rates by 75 basis points on consecutive meetings. Traders are fully pricing in a rise of that magnitude, but see an opportunity for a larger move.

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