Figures suggest inflation impact may be worse

Many observers believe South Africa’s inflation is higher than the official figures state.

Past debates between sceptics and the statisticians at Statistics SA (Stats SA) have been entertaining, with the official bean counters proving that the maths is correct and commentators scoring points with their arguments.

The latest inflation figure – indicating that it increased to 4.9% in August compared with 4.6% in July – is accurate, even against the background of much higher price increases in certain categories.

Fuel prices, for example, increased by nearly 20% compared with August 2020, electricity by 16% and meat by 10%. In this rare instance, both sides of the argument are correct.

The inflation rate depends on what products people buy, either as individuals or households, or as a society, which Stats SA is mandated to measure.

Those who eat meat will have seen their grocery bill increase by much more than that of their vegetarian neighbours.

Over the past year, the 10% increase in the price of meat and 21% increase in the price of oil to fry the meat far outweighed the 5.6% increase in vegetable prices and 3.5% increase in the prices of bread and cereals. In addition, the price of fruit decreased by 2.2%, according to Stats SA.

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The weights allotted to the different products in the inflation basket is important, and the official “shopping list” makes for very interesting reading. Fuel again provides an excellent example.

“Petrol prices recorded all-time highs in August 2021, with the price of inland 95-octane petrol, for example, reaching R18.30 per litre,” says Stats SA, adding that fuel prices increased by 4.9% between July and August alone.

However, Stats SA’s consumer price index (CPI) report shows that the 19.6% year-on-year increase (to August 2021) in fuel prices translated into an increase of 9.9% in overall transport costs, when factoring in the smaller increases in other running costs (4.9%), the purchase cost of vehicles (5.3%) and public transport (5.3%).

And the weight of fuel in the overall basket of goods and services used to calculate the CPI and inflation rate seems low at less than 4.6% – reducing the impact of the continuing hefty increase in fuel prices significantly.

Assuming a household budget of R20 000 per month, the Stats SA shopping list assumes that the average family spends R916 on fuel every month. The household’s inflation rate would be different if they drive more, or less, than the experts in Pretoria believe.

Most working people probably think they spend more on fuel. According to Stats SA, people would spend around 14.3% of their total spending on transport, including purchasing their cars and motorbikes. A weight of 6.1% has been assigned to the purchase cost of vehicles, equal to R1 220 per month in a budget of R20 000.

This would not equal the total instalment on a vehicle, as interest is brought into consideration.

Despite the seemingly low weight, transport costs were the main driver of inflation in August, as well as in previous months.

Stats SA notes that of the 4.9% increase in the CPI, rising transport cost contributed 1.4%.

The same argument is applicable to electricity, which is now 13.9% more expensive than a year ago. Stats SA’s weights assume that the R20 000 household will spend R760 on electricity per month.

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The second largest contributor to inflation was higher food prices. This accounted for 1.2% of the 4.9% inflation rate, largely due to the increase in meat prices.

Meat is an important component of the CPI, with a weighting of just below 5.5%. With fish at a weighting of 0.4%, it pushes the total spending to nearly 5.9%.

Contemplating that a typical household spends so much of its budget on meat and fish translates to R1 180 monthly. The total food category has a weighting of close to 15.5%, which presumes the family spends R3 100 on food in total.

The nonalcoholic beverages category has a weighting of 1.8%, while insurance products (10%) and rent (owners’ equivalent rent at 13%).

Cheaper package holidays and telecommunications equipment have reduced their impact on the inflation rate to just about nothing

–Moneyweb