Consumer prices have softened to a five-month low in South Africa as global inflation is starting to show signs of slowing down, in spite of food and transport prices exerting upwards pressure.
According to Statistics South Africa (Stats SA) yesterday, headline consumer price inflation (CPI) cooled slightly to 7.4% in November from 7.6% in October.
This was the lowest reading since June but slightly lower than the consensus forecast of 7.5%.
But inflation still remained above the upper limit of the South African Reserve Bank’s 3% to 6% target range, which could pave the way for yet another interest rate hike early next year, though less aggressive than 75 basis points.
Nedbank economist Johannes Khosa said they were expecting consumer inflation to continue trending downwards in the coming months, helped mainly by the moderation in food and fuel prices.
Khosa noted that global food inflation has eased significantly over the past few months, and thus the lagged effect was expected to start filtering through to the local economy, while a better summer harvest would contain local prices.
“We forecast CPI to end the year at around 7% (average 6.8% for 2022), and to ease further throughout 2023 to average 5.6% for the year,” Khosa said.
“However, upside risks to the outlook persist and could cause inflation to either remain steady at elevated levels for longer or recede at a much slower rate. The risks mainly stem from the global oil price and the rand.
“Global oil prices could rise from the current lower levels as the OPEC+ cartel decided to continue cutting oil production by 2 million barrels per day until the end of 2023 to support the oil price, which is under pressure from slowing global demand. Persistent global supply chain disruptions could also result in higher shipping costs,” he said.
Stats SA yesterday said the three categories with the highest annual inflation rates in November were transport, food and non-alcoholic beverages, and hotels and restaurants.
Fuel prices increased by 3.2% between October and November while prices charged by restaurants and hotels increased by 7.9% in the year to November.
Core inflation, which excludes food and non-alcoholic beverage prices and fuel and energy costs, remained steady at 5% in November after rising from 4.7% in September.
Stats SA chief director for price statistics Patrick Kelly said food and non-alcoholic beverages inflation climbed to 12.5% in November from 12.0% in October.
Kelly said this represented the seventh consecutive month of accelerating price inflation.
“This rising trend is mainly driven by inflation in bread and cereals, which reached an annual rate of 19.9% in November, up from 19.5% in October, and notably higher than the modest 2.3% recorded in November, 2021,” Kelly said.
“Prices of milk, eggs and cheese products rose by 10.9% in the 12 months to November, slightly higher than the 10.5% rate recorded in October. Coffee whitener increased by 4.6% between October and November, and full cream long-life milk by 2.4%.”
On a monthly basis, Stats SA said consumer prices were up by 0.3% in November following a 0.4% rise in October, and slightly above market forecasts of a 0.2% increase.
Inflation has been gradually softening in major economies over recent months as the lagged effect of central banks’ hawkish stance is being felt.
The annual inflation rate in the US slowed for a fifth straight month to 7.1% in November, the lowest since December, 2021 while inflation in the UK eased to 10.7% in November, 2022 from 11.1% in October which was the highest since October, 1981.
“A key question facing economies is the extent to which monetary policy tightening will be able to bring inflation under control,” said Adriaan Pask, PSG Wealth chief investment officer.
“Central bank actions have limited ability to bring cost-push (supply side) factors under control, and the risk is that aggressive hikes may tip the US and other developed market economies into a deeper recession,” he said.
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