January’s inflation easing gives consumers a little more breathing room

Inflation eased a bit in January, with headline inflation dipping to 5.7% from 5.9% in December, mainly thanks to lower fuel prices, while the consumer price index (CPI) increased by 0.2% between December and January, compared to a monthly rate of 0.6% in December.

According to Statistics South Africa, motorists and businesses breathed a little easier in January as fuel prices dropped by 2.8%, from record highs of December when the price of inland 95-octane petrol decreased by 68c per litre, and the average price of diesel decreased by 25c.

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Fuel price helped inflation lower

The annual price increase in the fuel category was 32.2% in January, lower than the 40.5% registered in December.

Passengers who use public transport also benefitted from lower prices in January, while car rentals also showed significant monthly price decreases with a 12.0% decrease, air fares with a decrease of 11.3% and long-distance buses charging 20.7% less.

However, these movements between December and January are largely seasonal.

Compared to January 2021, car rental prices have increased by 53.0% and air fares by 13.5%, while long-distance bus fares decreased by 9.3%.

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Food and non-alcoholic beverages takes inflation higher

While transport figures brought good news before another fuel increase, the annual food and non-alcoholic beverages inflation edged higher from 5.5% in December to 5.7% in January, with the monthly rate in January 0.9% and large monthly increases recorded for oils and fats and vegetables.

Cooking oil prices continued to soar, increasing by 5.2% between December and January, taking the annual rate to 32.2%.

The average price of a 750ml bottle of cooking oil increased to R31.12 in January 2022 from R24.25 a year ago.

The annual rate for oils and fats was 22.9% in January, the highest reading since 23.7% in September 2011, almost 11 years ago.

Vegetable prices showed an annual increase of 8,6%, the highest annual rise since April 2019, while the monthly increase was 3.4%. Notable monthly increases were for tomatoes (17.4%), lettuce (15.3%), spinach (6.9%), carrots (5.7%) and pumpkin (2.6%).

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Hospitality sector

Prices at restaurant and hotel continued to increase as the sector recover from the worst of the pandemic, with annual inflation at 5.0% in January 2022, increasing from a low of -0.5% in February 2021.

Annual hotel inflation was 2.8% in January, the highest reading since June 2019 (3.1%).

The increase in hotel prices follows increasing occupancy rates in the sector, with the occupancy rate at 33.2% in November 2021, according to the latest tourist accommodation data, much higher than the low of 1.5% recorded in May 2020, but still worse than the average of 50% recorded in 2019.

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Inflation dynamics have changed dramatically

According to the research group Oxford Economics Africa, South Africa’s scheduled five-year review of its inflation survey took effect from the January publication and as expected, the changes did not have a substantial effect on price changes.

Statistics SA updates the CPI basket to account for shifting household spending habits, as well as changes in technology and new consumer trends. The updated CPI basket consists of 415 items, compared to 404 in 2016.

The group says inflation dynamics have changed dramatically locally and abroad and South Africa’s headline inflation rate has increased by 2.5 ppts from the 3.2% year-on-year of January 2021, but core price inflation remains little changed on an annual basis.

“Burgeoning oil prices are expected to continue adding upward pressure on consumer prices, while strong demand for fertilizer will likely continue to fuel chemical prices. Crop losses caused by flood damage across various parts of South Africa in recent months pose a risk to the inflation outlook.”

Looking ahead, the group says it considers it likely that headline inflation could touch 6% during the coming months, but the impact of base effects should see annual inflation moderate from the second quarter. The group has revised its forecasts and expects inflation to average 5.3% in 2022.