SA’s inflation highest since November 2018

South Africa’s inflation reached its highest peak since November 2018 when it also hit 5.2%, after reaching 4.4% in April.

Annual headline inflation is now above the 4.5% midpoint of the South African Reserve Bank’s monetary policy target range.

The new inflation figures for May were released by Statistics SA today, with Statistics SA saying the 5.2% annual change comes off a low base in May 2020 when fuel prices were low. Core inflation, which is CPI excluding food and non-alcoholic beverages, fuel and energy, was 3.1% in May 2021, much lower than the headline rate.

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Fuel and new cars

Fuel now costs 37% more than a year ago. Statistics SA says despite a small monthly drop in the fuel price in May, the annual increase quickened to 37.4% from 21.4% in April. Petrol prices were 41.8% higher in May compared to May 2020, while diesel was 27% more expensive.

Vehicle prices increased by 6.5% in the year to May, while other running costs for vehicles rose 8.9% on an annual basis and by 0.8% from April to May 2021. Tyre prices increased on average by 3.3% from April to May 2021.

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Food inflation highest in 46 months

Annual inflation on food and non-alcoholic beverages increased to 6.7% in May from 6.3% in April 2021, with May reading the highest since July 2017. The reason for the spike is the cost of meat, fish, oils and fats, sugar, sweets and desserts, which all recorded rates above 6.7%.

Annual meat inflation has stubbornly remained above 6% since October 2020, climbing to 8.5% in May. Prices for fish products increased at a brisk 7%, slightly lower than April’s 8.1%. Cooking (sunflower) oil prices continue to surge, increasing by 30.3% from May 2020 and by 8.5% from April 2021. The average price of a 750ml bottle of sunflower oil, for example, was R20.99 a year ago, rising to R29.39 in May.

Statistics SA says the higher cooking oil prices have driven inflation in the broader oils and fats category, which recorded an annual rate of 20% in May, up from 16.7% in April.

The sugar, sweets and desserts index increased by 8.7% annually, up from 8% in April. White sugar prices have risen faster (11.5%) than the price of brown sugar at 4%, but from April to May brown sugar recorded a higher monthly increase (1.9%) compared to white sugar (0.3%).

Alcoholic beverages and tobacco products showed an annual change of 5.8%, with wine prices increasing by 7.2% and tobacco prices by 6.6%.

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Shift from services to goods

Statistics SA says it noted the drivers of inflation have shifted over the past 12 months. The highest annual price increases in May 2020 were recorded by services such as education, insurance and housing and utilities at 4.1%, while the rate for goods was flat. However, by May 2021, services inflation had eased to 2.7%, while the rate for goods increased to 8%.

Professor Jannie Rossouw of the Wits Business School says the spike was anticipated because it was already evident in food prices and new car prices. “The impact will again be felt by poor people who spend most of their income on food,” he says.

Elize Kruger, an independent economist, says that in May 2020 in the midst of the hard lockdown, petrol and diesel prices dropped by R1.74 and R1.61 per litre respectively. Therefore, comparing prices in May 2021 to May 2020, has resulted in a sharp uptick that is purely based on the low base of calculation for technical reasons.

“May’s headline CPI should be the near term upper turning point of the current CPI cycle, before subsiding somewhat in the next few months. The recent sharp increase in international oil prices and also a notable depreciation in the rand exchange rate will place some upward pressure on fuel prices in July and August, thus lifting the CPI forecast curve somewhat,” she says.