Fuel prices mostly to blame for increase in cost of living

While year-on-year headline inflation was an acceptable 4.4% in April, the 12% increase in fuel prices contributed to a rise of 7.4% in the cost of transport. Image: iStock

While year-on-year headline inflation was an acceptable 4.4% in April, the 12% increase in fuel prices contributed to a rise of 7.4% in the cost of transport. Image: iStock

The 7.4% rise in transport costs have had an impact on the prices of all other categories of goods and services, as just about everything needs transport to reach consumers.

It is not surprising that the largest contributor to inflation in April has been the regular increases in fuel prices over the past year.

While year-on-year headline inflation was an acceptable 4.4% in April, the 12% increase in fuel prices contributed to a rise of 7.4% in the cost of transport. Some 1.1 points of the 4.4% increase in inflation can be attributed to transport costs directly, because transport is part of everybody’s life and has a relatively large weight in the basket of goods and services used to calculate the inflation rate.

In addition, transport costs would have had an impact on the prices of all other categories of goods and services as just about everything needs transport to reach consumers.

A leisurely read through the whole of Statistics SA’s Consumer Price Index (CPI) report for April shows that consumers could not avoid many of the other price increases.

Sharp increase in administered prices

Administered prices set by authorities increased sharply, with the cost of water and other services increasing by 10.8% and electricity by 6.8%. Once again, water and electricity are basic inputs for all industries and have an indirect effect on the prices of all consumer goods.

The Stats SA reports shows that the CPI for administered prices increased by 8.3% compared to a year ago. The effect of this is that the CPI would have increased by only 3.7% if the higher administered prices could have been avoided.

The price of cool drinks increased by 9.4% compared to a year ago, with the new sugar tax probably making a contribution. While average food prices increased by only 2.3% year on year, fresh vegetables saw price increases of 10.1% while fruit is now 6.4% more expensive. The prices of bread and cereals also increased by more than the overall inflation rate, at 6.1%.

Wine drinkers will have noticed that the price of a bottle has been creeping up month after month to post an increase of 7.9% since April 2018. Maybe it’s time to switch to beer, which is only 4.5% more expensive than it was in April 2018.

Incomes up, for some

Even doctors, dentists and domestic workers may have to settle for more conservatively priced food and beverage. ‘Even?’ you may ask. Digging into the additional data that Stats SA publishes together with its main report shows that domestic wages are now 5.1% higher than a year ago, while dentists and doctors now earn 5.5% and 5.9% more respectively.

Or we can all save money by living healthier and avoiding doctors – prices of sport and recreational equipment decreased by 0.4% compared to a year ago. Maybe bargain hunting explains recent reports that South Africans are still spending lots of money on sporting gear.

Footwear and clothing prices increased by much less than the overall inflation rate in urban areas (1.9%), and meat and furniture prices actually dropped (by 1.2% and 1.1% respectively), while dairy product prices went up 0.8% and appliance prices increased by 1.1%.

Different inflation rate for different groups

Stats SA also calculates CPI figures and the corresponding inflation rate for people in different income groups. This data shows that people who spend more money – more than R14 000 per month – experienced inflation of 4.7%. People spending between R2 500 and R5 000 per month saw their cost of living increase at the somewhat lower rate of 3.6%.

Extremes both in ‘the Cape’

The calculation of inflation by province shows that inflation was highest in the Western Cape at 5.2% and lowest in the Eastern Cape at 3.8%, illustrating the difference in disposable income between the two provinces.

Source: Compiled from Stats SA CPI report, April 2019

The Western Cape saw the highest increase in the cost of water and services (9.4%) and electricity (7.5%), as well as house rents (7.5%). The price of wine also increased more than in other provinces (8.2% compared to the national inflation rate of 7.9%).

The province seems to be the best place in SA to own a hotel. According to the Stats SA report, hotels in the Western Cape are now 12.9% more expensive than a year ago, despite a decrease of 2.6% from March to April.

Hotel prices dropped by 1.7% in the Eastern Cape, 3.4 % in KwaZulu-Natal and just less than 1% in Gauteng. Hotel owners in Limpopo apparently upped their rates by 7.4%.

Interest rates should remain steady

The latest inflation figures indicate that there are no reasons for the South African Reserve Bank to increase interest rates soon. The inflation rate has remained within the bank’s target rate of 3-6% for the last two years, since April 2017, following a period of interest rates of between 6% and 7% from January 2016 to March 2017.

The highest interest rate recorded in SA since 1911 was the 20.7% in January 1986, when a period of high inflation pushed the annual inflation rate to 18.7%.

The lowest rate was in 1922, when prices fell 23.7%, but that came after prices increased by nearly 24% over the preceding 12 months and not much should be read into this figure.

The scary period of low interest rates and an indication of serious economic problems were during the depression of 1930 to 1933, when the inflation rate remained negative for four consecutive years.

Brought to you by Moneyweb

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