SA inflation falls for second month, bringing it closer to SARB’s target

South Africa’s inflation rate decreased to 4.6% in July from 4.9% in June 2021, which means that consumers paid 4.6% more for goods and services than they did in July 2020. This decrease brings the inflation rate closer to the 4.5% of the SA Reserve Bank’s (SARB’s) target range.

Unfortunately, the consumer price index (CPI) increased by 1.1% month-on-month in July 2021, which means consumers paid 1.1% more for goods and services in July than they did in June. This was the highest monthly increase since July 2020, when the CPI increased by 1.3%.

According to Statistics SA, the main drivers of the monthly increase were alcoholic beverages, housing and utilities, transport and medical insurance, while the main contributors to the 4.6% annual inflation rate were food and non-alcoholic beverages, housing and utilities, transport and miscellaneous goods and services.

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Food and drink

The prices of food and non-alcoholic beverages increased by 6.7%, the same as in May and June, year-on-year and contributed 1.1 percentage point to the total CPI annual rate of 4.6%. The monthly rate was 0.2%, the same as the previous monthly increase.

Meat prices are currently at its highest level since March 2018, increasing by 9.4% over the past 12 months, with a steady climb since August 2020. Inflation for oils and fats also continues to increase, reaching an annual rate of 22.4%, the highest in almost 10 years (October 2011).

The prices of sugar, sweets and desserts inflation have slowed down from a 12-month high of 9.7% in October 2020 to 6.5% in July 2021.

Alcoholic beverage prices increased by 1.7% in July compared to June, the highest increase since March 2019. This trend was followed by red and white wine prices that also increased sharply, with both recording a 3.8% increase in July from June.

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Housing and utilities

Consumers also paid 3.8% more for housing and utilities year-on-year, which contributed 0.9 of a percentage point.

Statistics SA says municipalities typically increase service charges in July and August at the beginning of the municipal financial year. Although charges for water increased by less than last year, the prices of electricity and assessment rates were higher than in 2020.

Water charges increased by 7.0% (compared to 9.9% in 2020), electricity tariffs by 13.8% (compared to 6.3% in 2020) and assessment rates by 4.3% (compared to 3.5% in 2020).

Transport

Transport increased by 8.0% year-on-year and contributed 1.1 percentage points while fuel prices increased by 1.7% between June and July, taking the annual rate to 15.2%, down from June’s reading of 27.5%.

Miscellaneous goods and services

The prices of miscellaneous goods and services increased by 4.2% year-on-year and contributed 0.7 of a percentage point. In July the annual inflation rate for goods was 6.7%, down from 7,1% in June, while it was 2.7% for services, down from 2.9% in June.

Medical insurance

According to Statistics SA, the inclusion of new price changes for medical insurance took the annual rate for this category from 4.6% in June to 5.9% in July.

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According to NKC Research, the latest inflation print matched its expectation and consensus.

“We expect the August inflation print to tick up slightly as a result of another massive jump in local fuel prices. In fact, local petrol prices jumped almost 80 cents per litre, while the price of diesel rose by almost 50 cents per litre.”

NKC says the current view for September petrol prices is balanced, while diesel is set for a decrease.

“In turn, the rand averaging stronger than it did last year will aid in driving inflation lower over the near term.”

However, recent riots in KwaZulu-Natal and Gauteng pose upside risk to the inflation outlook, the researchers say.

“The riots exacerbated disruptions in supply chains, which have been weakened as a result of the Covid-19 pandemic, while the loss of milk, eggs, vegetables and yeast production could drive food prices higher.

“Therefore, we maintain our view that inflation will average at the midpoint (4.5%) of the target range this year.”