SOUTH AFRICA – This as the headline consumer inflation surged to a 13-year high in June driven by rising fuel and food prices.
Statistics South Africa (StatsSA) said the annual inflation rate in South Africa quickened to 7.4 percent in June from 6.5 percent in May, rising above market expectations of 7.2 percent. This was the highest rate since May 2009 when the rate was 8 percent when the economy was facing the headwind of currency depreciation during the global financial crisis.
StatsSA said prices of food and non-alcoholic beverages (NAB) rose by 8.6 percent year-on-year in June, and 1.2 percent on a monthly basis. This was the highest annual rate since March 2017 when the country was recovering from severe drought.
However, fuel inflation surged by 45.3 percent from a year ago, representing the largest annual increase for fuel since 2009, and by 9.4 percent month-on-month.
This was explained by the R2 per litre surge in petrol prices and more than R1 per litre hike in diesel prices in June.
FNB economist Koketso Mano said they anticipated headline inflation to average 7.2 percent for the year, driven by fuel and food inflationary pressures. Mano said that “Both petrol and diesel prices rose by over R2 per litre in July and should exert upward pressure to the upcoming inflation print, adding to persisting food price pressures, in addition, the survey of municipal increases will appear in core and electricity inflation.”
However, the decline in international crude oil prices to around $100-mark (R159) per barrel could offer local consumers some respite as fuel prices is expected to tentatively drop in August.
On a monthly basis, StatsSA said the Consumer Price Index (CPI) rose by 1.1 percent between May and June. Core inflation, which excludes food and fuel prices, rose from 4.1 percent year-on-year in May to 4.4 percent in June, a monthly pressure of 0.6 percent. Nedbank economist Johannes Khosa said inflation was probably close to peaking in the current cycle.
Khosa said inflation would remain elevated in July, mainly due to another high increase in the petrol price experienced during the month.
However, he said after that, inflation was likely to start moderating gradually off a high base to end the year around 7 percent.
He stated that “There have been signs of moderation in international food and crude oil prices in recent months, and global supply chain pressures have receded slightly after China relaxed Covid restrictions, we forecast CPI to average 6.8 percent in 2022, up from 6.5 percent previously, and 5.5 percent in 2023. However, risks to the outlook remain to the upside.”
The surge in inflation should result in higher surveyed inflation expectations, higher market inflation forecasts, placing further upward pressure on local interest rates.
The annual inflation rate has already broken through the upper limit of the South African Reserve Bank (SARB) target range of 3-6 percent for the second month in a row.
Given the accelerating tightening of global monetary policy, it is widely believed that the SARB will hike interest rates by 50 basis points today, Thursday, and in September, lifting the repo rate to 6 percent and the prime rate to 9.5 percent by the end of the year.
