Will chicken and fuel prices affect inflation rate for September?

As Statistics SA reveals the inflation rate for September, consumers will be closely monitoring the potential impact of increased chicken and fuel costs. Meanwhile, individuals with debts will be eager to determine whether there will be a rise in the repo rate as a result of the heightened inflation.

Moreover, Elize Kruger, a freelance economist, cautions that September is a pivotal survey month, with numerous quarterly surveys that could significantly influence the results. These surveys encompass various aspects, including actual rental prices, owners’ equivalent rent, domestic worker wages, as well as taxi, bus, and train fares, and motor vehicle insurance rates.

“In addition, all eyes will be on the food price basket to see if the crisis in the poultry industry has started to affect the food CPI in the form of higher chicken and egg prices. Government announced that approximately 2.5 million chickens bred for their meat were culled [due to Avian Flu outbreak], while the South African Poultry Association indicated that another 5 million egg-laying chickens were culled.

“This 7.5 million birds represented about 20-30% of South Africa’s total chicken stock according to the South African Poultry Association. No doubt, there is bound to be a negative impact on all chicken-related product prices due to this unfortunate scenario.” 

Kruger says add to this mix the notable fuel price increases in September and there will be firm upward pressure on the inflation rate for September. The petrol price increased by R1.71/l and the diesel price by R2.84/l (0.05% Sulphur) in September, with further steep increases also in October.

Cumulatively, over the petrol price has now increased by R3.19/l and diesel price by a notable R5.53/l over the past three months. Kruger says this will no doubt be inflationary, given that trucks transport around 80% of goods in the country.

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Lower inflation in July and August very short-term phenomenon

“The favourable sub-5% inflation prints were a very short-term phenomenon in July and August, as headline inflation will spike back up to 5.6% in September and remain above 5% probably until around the fourth quarter of 2024.”

Headline consumer inflation moderated from 7.1% year-on-year in March to 4.7% in July and ticked up marginally to 4.8% in August, reducing the extent of the erosion of purchasing power that households had to deal with in recent months.

However, she says, the significant fuel price increases, in combination with other factors, will result in this unwelcome U-turn in headline inflation.

“Consumer inflation is still forecast to average at 6.0% in 2023 compared to a 13-year high of 6.9% in 2022, but the anticipated moderation in 2024 is likely to be disappointing. The South African Reserve Bank’s (Sarb) current forecast for headline inflation is 5.1% for 2024 compared to 5.9% forecast for 2023.

“My view was slightly higher than the Sarb’s at 5.2%, before incorporating the latest fuel price and medical aid premium increases. Now my forecast has been revised higher to 5.4% for 2024, with the first half of 2024 averaging 5.6%, before moderating to an average of 5.3% in the second half of the year.”

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Reserve Bank already watching inflation

Kruger says the Sarb is already acutely aware of the upside inflation risks posed by the renewed rand depreciation and higher fuel prices and now on top of those the sharp increase in medical aid premiums was announced. Two members of the Monetary Policy Committee (MPC) already voted for a further hike in interest rates at the most recent meeting.

“A notable deterioration in the headline CPI forecast could increase the risk that interest rates might be hiked further, although my base case is for interest rates to remain flat at its current elevated level for at least six months.”

She says as a minimum, interest rates are likely to remain at the current elevated level for much longer than anticipated and with household finances already under severe pressure, this scenario remains negative for the spending ability and confidence levels of consumers, deep into 2024.

Statistics SA normally surveys the annual change in medical aid premiums in February each year, with small changes during the course of the year, in some years.

Kruger says the increases were smaller in the Covid year, with additional increases deferred to later in the year, with 2024 the first year since 2020 that the full increase will again be reported in February. This will result in notable upward pressure on the inflation rate in February.