SA consumer inflation accelerates in October – air travel, onions and salad dressing lead the way

23 Nov 2022

South African consumer inflation picked up pace again in October after slowing for two consecutive months, ticking up to 7.6% on an annual basis from 7.5% in September. This will not escape the notice of the SA Reserve Bank’s Monetary Policy Committee (MPC), which is poised to deliver another big rate hike on Thursday.

At 7.6%, the Consumer Price Index (CPI) remains within spitting distance of its 13-year peak of 7.8%, scaled in July, and well outside the central bank’s 3% to 6% target range. And the MPC will take note of the fact that it picked up a bit of pace again in October.

The MPC does not typically formulate policy on one data set, but this will cement the case for a big hike and possibly mean the difference between 75 basis points or 100.

Food prices remain the main driver, raising the already arduous cost of living on poor and working class households, while also chowing into the disposable income available to the middle class.

“The annual rate for food and non-alcoholic beverages edged higher to 12.0% from 11.9% in September. The bread and cereals category continues to witness high levels of inflation, with the annual rate increasing to 19.5% from 19.3% in September. Large monthly price increases were recorded for sweet biscuits (5.5%), macaroni (3.1%) and maize meal (1.7%),” Stats SA said.

The rising price of maize meal is a major concern as it is the staple source of calories for the poor – in other words, what many poor people depend on for basic nutrition.

In South Africa’s deeply unequal society and dangerous political climate, it is an unwelcome trend that can stoke social unrest. A lot of the credit for this belongs to Vladimir Putin – his ham-fisted attempt to subjugate Ukraine has been a key accelerant for global food prices.

Fuel prices at least eased, but the outlook on this front is uncertain, especially in light of rand volatility. Stats SA said the fuel index declined for a third straight month to 30.1% in October from 34.1% in September, and has now come a long way from its annual peak 56.2% in July. But at over 30%, it is clearly still taking a toll.

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Annabel Bishop, Chief Economist at Investec, noted that price pressures are broadening.

“Worryingly, core CPI inflation, which excludes food and non-alcoholic beverage prices, as well as excluding fuel and energy costs, rose to 5.0% y/y in October from 4.7% y/y in September.

“Second-round effects have become more apparent as the year progresses ... which further indicates the broadening nature of CPI inflationary pressures in SA,” she wrote in a note on the data.

On a monthly basis, Stats SA said the item that had the biggest price increase between October and September was passenger transport by air, which saw an 11.3% rise. This will come as no surprise to anyone who has tried to fly recently between Joburg and the Mother City.

Onions were second, with a 10.5% increase, while salad dressing prices rose 7.5%. So, if you like to fly and eat onions and salad dressing, such amenities now cost you considerably more.

These trends probably stem from the broader second-round effects that Bishop highlighted.

“The SA Reserve Bank will worry that high inflation (inflation above its 4.5% y/y midpoint target) can become entrenched, and both the lift in the core measure and rise in headline CPI inflation in October will add to these concerns,” she said.

Given October’s CPI read, she went on to say that 100 basis points may now well be on the cards, which would take the SA Reserve Bank’s hikes since November last year to 375 basis points and the prime rate to 10.75%.

“Consumers may have to accept that, in a world of high inflation, there is little hiding room,” Luigi Marinus, Portfolio Manager at PPS Investments, said in a commentary on the numbers. DM/BM

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