StatsSA this week reported that consumer price inflation (CPI) rose to 3.2% last month, up from 2.9% in February, while the consumer price index increased by 0.7% month-on-month.
According to Statistician-General Risenga Maluleke, the main contributors to the 3.2% annual inflation rate were food and non-alcoholic beverages, housing and utilities, transport and miscellaneous goods and services.
“Food and non-alcoholic beverages increased by 5.7% year-on-year and contributed 1.0 percentage point to the total CPI annual rate of 3.2%. Housing and utilities increased by 2.2% year-on-year, and contributed 0.5 of a percentage point,” said Maluleke.
He added that transport costs increased by 3.8% year-on-year and contributed 0.5 of a percentage point while miscellaneous goods and services increased by 4% year-on-year, and contributed 0.7 of a percentage point.
The new inflation figures are in line with market expectations.
FNB economist Mamello Matikinca-Ngwenya said the upward trajectory was expected.
“We expect inflation to peak at a rate not higher than 5.1% next month before steadily moderating in the second quarter of this year,” said Matikinca-Ngwenya.
She said this upward trend in consumer inflation was a temporary phenomenon and should not be destructive to economic activity.
The Reserve Bank should look beyond this temporary event and allow monetary policy to remain highly accommodative at least for the next 12 to 15 months, she said , adding that at this stage, developments in overall consumer inflation data did not influence FNB’s monetary policy view.
According to the Reserve Bank, inflation remains well-contained and is expected to gradually rise towards the midpoint of the 3% to 6% target band, reaching 4.5% by 2023. It said inflation would remain well-contained in the first quarter of this year.
Headline inflation benefitted from subdued services inflation and fuel price deflation last year while upside pressures came primarily from food and non-alcoholic beverages, the bank said.
The Reserve Bank warned that recent spikes in food and fuel inflation, together with base effects, would add to near-term inflation, with headline inflation breaching the 4.5% midpoint in the second quarter of this year before easing somewhat into next year.
As with headline, core inflation averaged 3.3% last year, kept low by continued weak housing price inflation and subdued labour market pressures.
“Core inflation is projected to rise to 4.3% by the end of the forecast horizon [in 2023], with the pace of the reversion tempered by the gradual closure of the negative output gap, better-anchored inflation expectations and a less depreciated real exchange rate,” said the central bank.
Keeping inflation low into the recovery would help contain interest rates, it said.
Luigi Marinus, portfolio manager at PPS Investments, said in February inflation breached the lower end of the target band for only one month but has remained modest at the lower end of the band.
“Although inflation appears to be well-contained in South Africa, inflation expectations have increased somewhat. Locally, inflation is expected to increase to around the midpoint of the target band by the end of the year, which could lead to a move away from the current cutting interest rate cycle,” said Marinus.
Marinus said globally, and in the US in particular, inflation had edged higher with the US Federal Reserve confirming that inflation would need to be at high levels for a reasonable time before they are likely to hike rates.
There were therefore many factors the Reserve Bank needed to consider in its decision-making in the near future, he said.