CPI accelerates to 3.2% in March, economists say price pressures still muted

Inflation picked up pace in March, but there are no real red flags on the immediate price horizon that might prompt the central bank to raise rates. Statistics South Africa (Stats SA) said on Wednesday that the benchmark CPI quickened to 3.2% in March from 2.9% in February. That remains near the bottom of the South African Reserve Bank's (SARB) 3% to 6% target range. 

"A low base in the second quarter of 2020 coupled with sharply higher energy costs could well see CPI inflation sustaining its upward trend, possibly even reaching 5% in coming months," RMB Chief Economist Ettienne le Roux said in a commentary on the data. 

"There is little reason for alarm, however. Beyond a likely short-lived acceleration, the medium-term outlook for CPI inflation remains encouraging," he said. 

Le Roux also mentioned an interesting trend that is helping to contain inflation. 

"... in response to 2020’s deep recession, efficiency benefits resulting from corporate restructurings, new cost-saving initiatives and increased spending on technology ought to be significant – all this at a time when the corporate landscape is becoming ever more competitive," he wrote. 

So if companies are cutting their costs, they can pass that onto consumers in a bid for market share.

Another key reason for moderate inflation the past couple of years has been the dire state of the economy, which has throttled demand. It was in recession last year before the Covid-19 pandemic struck, triggering the 7% 2020 contraction, and unemployment is north of 40% based on its broadest definition. 

Retail trade sales rose 2.3% year-on-year in February after 10 straight months of decline, but it remains to be seen if that can be sustained. And that is hardly a figure that is reaching for the stars.

Food inflation in March sped up to 5.7% from 5.2% in February, and that is concerning as rising food prices take their greatest toll on the poor. This can also feed into wage demands as many a unionised worker in South Africa has several dependants. But this is seen peaking soon. 

 "If you look at the products on the food side that underpinned the slight acceleration from February, it was bread, meat, fish, milk, cheese and fats. And we were anticipating an increase in these products in the first quarter because this mirrored what we saw on commodity prices. Between grain farm prices and retail prices there is usually a three-month lag," Wandile Sihlobo, chief economist of the Agricultural Business Chamber of South Africa (Agbiz), told Business Maverick. 

White maize futures are up over 30% in the year to date but Sihlobo said that Agbiz sees food price inflation softening toward the end of the second quarter and averaging less than 5% this year. 

"We think grain prices will soften as we enter the harvesting period." South Africa's maize harvest this year is expected to be the second biggest on record at around 16.7 million tonnes.  DM/BM