SA’s 2020 inflation lowest in 16 years

‘2021 should be the fifth year that average headline CPI is below the 6% upper band of the SARB’s 3%-6% target range, confirming that inflation is well under control in South Africa.’

The average annual inflation rate for 2020 was 3.3%, according to the December 2020 Consumer Price Index (CPI) released by StatsSA on Wednesday. This is the lowest annual average rate since 2004 when it was 1.4% and the second lowest since 1969 when it was 3.0%.

According to the South African Reserve Bank (SARB), one of the reasons for low inflation in 2004 was a firmer rand, which strengthened from an annual average of R7.56/$ in 2003 to R6.45/$ in 2004.

Annual inflation

In December annual inflation ended 2020 at 3.1%, which was slightly lower than in November when it was 3.2%. The monthly increase was 0.2%, up from 0% in November.

Food and non-alcoholic drinks

The main driver of inflation in December was the food and non-alcoholic beverages category, with a monthly increase of 0.5% and an annual rise of 6.0%, up from November’s annual reading of 5.8%.

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Three food groups recorded above average annual and monthly price increases in December:

  • Meat prices increased by 7.3% from a year ago and by 1.2% from November. Stewing beef was 2.9% more expensive than in November 2020 and 12.4% more expensive than in December 2019.
  • Oil and fat prices increased by 10.2% over 12 months and 1.6% over one month. Cooking oil prices increased by 11.3% since December 2019 and by 2.9% between November and December 2020.
  • Inflation in sugar, sweets and dessert products recorded an annual rise of 8.4% and a monthly rise of 1.1%. White sugar prices increased by 1.1% over the month and by 10.0% over the year.

This is good news

“The December CPI carries the results of the latest survey for housing rentals, which is the source for actual and imputed rentals. Together, these components comprise almost 17% of the CPI basket. Houses registered a lower annual increase [1.0% for imputed rentals] than flats [1.9% for imputed rentals)]and townhouses [1.7% for imputed rentals]. The overall annual increase for imputed rentals was 1.1%. Actual rentals rose by 1.2%,” says Elize Kruger, an independent economist.

She says headline inflation came out in line with expectations at 3.1% year-on-year, based on a 0.2% month-on-month growth rate, compared to 3.2% year-on-year in November.

“This is still comfortably in the SARB’s 3%-6% target band for the 45th consecutive month.”

Kruger explains that December is a high survey month with quarterly surveys of actual rentals, owners’ equivalent rent, domestic worker wages, taxi, bus and train fares and motor vehicle insurance all impacting the outcome, over and above the normal monthly drivers, such as fuel and food prices.

“The main drivers of the monthly change of 0.2% were higher food prices that added 0.1 percentage point and a 0.1 percentage point contribution from the ‘residual item’, implying that a number of low-weighting items increased to cumulatively contribute to the monthly change. No big price movements evident in the basket, despite the high survey month.

“Core CPI remained unchanged at 3.3% year-on-year, reflecting very low underlying pressure on consumer prices in South Africa, a phenomenon reflecting the recessionary economic conditions, which is not conducive to opportunistic pricing, but rather an environment of very low margins.”

Looking to the rest of 2021

Kruger forecasts that headline inflation will trend higher to average at 4.2% compared to 2020’s actual average of 3.3%.

“The upward trend in consumer inflation will be driven by higher fuel prices, as the international oil market recovers in-line with a recovery in the global economy, plus higher fuel taxes, a higher electricity price increase and higher food price inflation.

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“These upward forces will be tempered to some extent by subdued pricing of consumer goods given the sluggish demand environment and less pressure on services inflation,” she says.

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