Ina Opperman

By Ina Opperman

Business Journalist


Shocking inflation rate increase for May spells more trouble for consumers

Consumers who are already struggling with high prices and debt, are now almost certain to see the interest rates increase even further.


The shocking May inflation rate increase to 6,5% announced on Wednesday morning, spells trouble for consumers who are already battle to make ends meet.

It is now almost certain that the repo rate will increase by 50 basis points in July, that will mean another increase in interest rates for already heavily indebted consumers.

Food and fuel prices pushed inflation to the highest rate in five years in May, with annual consumer price inflation increasing by 0,7% from 5,9% in April and March, according to Statistics SA. This is the highest reading since January 2017 when the rate was 6,6%.

Transport, food and non-alcoholic beverages accounted for just over half of the annual rate. Fuel is still a major contributor to the inflation rate, which would fall to 5,1% to 6,5% if the impact of the fuel price is removed.

Diesel prices increased by 8,1% between April and May, taking the annual rate to over 45%, while petrol cost almost 27% more than in May 2021.

Food and non-alcoholic beverage prices increased by 2,1% between April and May, the largest monthly increase since February 2016, mainly driven by sunflower oil, that cost almost 40% more than a year ago, while prices increased by 16,1% between April and May.

ALSO READ: May inflation highest in 5 years due to food and fuel prices

Main contributors and core inflation

The main contributors to the annual inflation rate were:

  • food and non-alcoholic beverages (+7.6% and contributing 1.3 percentage points (ppt)
  • housing and utilities (+4.9% and contributing 1.2 ppts)
  • transport (+15.7% and contributing 2.1 ppts)
  • miscellaneous goods and services (+3.9% and contributing 0.6 ppt).

Core inflation, which excludes volatile items such as food, non-alcoholic beverages, fuel and energy, increased by 0.2 ppt to reach 4.1% compared to May 2021, which is consistent with the ongoing recovery momentum in consumer demand.

Until now core prices stayed below 4.0% since November 2019.

Goods inflation accelerated from 8.5% to 9.5% compared to May 2021, while annual services inflation increased to 3.6%, compared to 3.5% in April.

ALSO READ: Low-income South Africans forced to go hungry as food prices explode

‘Utterly shocking’ increase in inflation

Prof. Jannie Rossouw, visiting professor at the Wits Business School, says the increase is utterly shocking, but he does not expect the Monetary Policy Committee (MPC) of the South African Reserve Bank (Sarb) to increase the repo rate by 75 basis points as the Federal Reserve did in the US.

“I think the MPC will not follow the Fed and will rather keep the increase as small as possible and see what the consequences are.”

Economic research group, Oxford Economics Africa, says the increase in inflation was way above the consensus forecast for a 6.1% year-on-year increase.

“Although the May inflation figures came in hotter than we expected, it plays into our above-consensus forecast of 6.2% in 2022 subject to be revised higher in the coming months.”

The group says the increase also means that the South African Reserve Bank (Sarb) will hike the repo rate by 50 bps during its upcoming policy meeting in July, with more frontloading likely to follow, which could see the repo rate end the year at 6.0%.

“The US Fed’s ‘no more Mr Nice Guy’ approach to surging inflation places the Sarb under pressure to be more attentive to the rising risk of currency depreciation and attempts to curb foreign investment outflows.”

Oxford Economics Africa says it is safe to say that headline inflation will peak well above 7.0% compared to 2021, compared to its previous expectations of a crest of between 6.5% and 6.8%.

ALSO READ: Asian stocks sink again as inflation panic grips world markets

Revised forecast

Luigi Marinus, portfolio manager at PPS Investments, says inflation is now averaging slightly less than 6% for 2022 so far.

”The Sarb has been ahead of the curve in terms of increasing short term interest rates before inflation moved above the top end of the target band, but these increases have not done enough to keep inflation low, but this is largely as a result of factors such as the oil price and a general increase in global inflation.”

Marinus says although local inflation is a concern, the action of the US Fed may have a larger influence on asset prices globally as they balance increasing interest rates to reduce their extremely high inflation level against the negative effect that may have on GDP growth.

Adriaan Pask, chief investment officer at PSG Wealth, says the Sarb forecast of headline inflation for 2022 is revised higher to 5.90% (from 5.80%), due to higher food and fuel prices.

“While food prices are expected to remain elevated, fuel price inflation should ease in 2023, helping headline inflation to ease to 5%, despite higher core inflation. Headline inflation of 4.70% is now expected in 2024.”

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