The annual headline consumer inflation accelerated to 4.5% in March, from 4.1% in February, owing to another 74c fuel price hike in the same month.
Land Bank economist Tebogo Mashabela on Friday commented on Statistics South Africa’s Consumer Price Index release, pointing out that the fuel price hike in March had contrasted with the decrease in the petrol price of 36c in March 2018.
As a result, the year-on-year fuel component of inflation shot up to 8.8% in March, from 0.9% in February and -1.2% in January – bearing in mind that fuel has a weighting of 4.58% within the overall index.
This 8% increase in the fuel inflation rate alone accounted for almost the entire 0.4% rise in the overall headline inflation rate, Mashabela said.
Food inflation remained unchanged at 2.3% for the third consecutive month. However, Mashabela pointed out that looking at a broader category that includes nonalcoholic beverages, food inflation rose to 3.1% in March, from 2.9% in February.
“A closer analysis of the underlying components of the food inflation basket shows that inflation is rising quite significantly in respect of many of the food categories, including bread and cereals, oils and fats, fruit and vegetables.”
According to Mashabela, the annual inflation rate of bread and cereals rose strongly over the past few months, reaching 6.1% in March, compared with 4.9% in February.
Drought conditions during the planting period in the north-western regions of the country, mainly the North West and Free State, caused staple food commodity prices such as maize and soya to rise.
“The inflation acceleration of these staple foods has a major impact on the affordability of food and this is particularly concerning to poor consumers who spend an estimated 12% of their income mainly on fruits and vegetables. This could result in poor consumers not [being able to afford] to buy fruits and vegetables, thus resulting in a less balanced diet.
“The effects are starting to be felt, hence a significance increase in bread and cereals inflation in March. It was estimated that the current South African Futures Exchange white and yellow maize prices are more than 20% more than what they were during the same period last year,” Mashabela highlighted.
He added that vegetable prices showed an alarming annual inflation rate of 9.4% in March, from 8.9% in February, while fruit prices also showed a “startling” increase in annual inflation rate of 7.6% in March, from 4.7% in February.
This was as a result of lower supplies of vegetables seen recently as a result of seasonality and drought conditions in certain parts of the country. It is, therefore, expected that vegetable prices will decelerate to some extent in the next few months as supplies normalise.
Meat inflation, meanwhile, continued to decelerate, dropping to -1.1% in March, from -0.5% in February, thereby extending a decline that has continued virtually unabated since the 15.6% peak in meat inflation rate was recorded in September 2017.
“This has somewhat prevented the overall food inflation rate from rising. The decline in meat inflation was largely owing to an increase in domestic supplies, which in turn was as a result of local suppliers being forced to sell to the domestic market instead of exporting because of a ban on such exports by neighbouring States out of the fear of the effects of Foot and Mouth Disease (FMD) in Limpopo.
“FMD has now been eliminated, so it is expected that the situation will normalise and meat inflation will begin to accelerate in a few months’ time. The increase in meat inflation is also likely to be supported by the expected increase in the poultry import tariff rate.”
Mashabela went on to explain that food inflation was expected to gradually pick up with the beneficial impacts of the end of the drought gradually fading away. He said the normalisation in the meat industry would likely result in meat inflation accelerating going forward as export markets that banned South Africa’s red meat suspend the export ban.
In conclusion, he said maize prices were likely to rise as a lower harvest is expected this season compared with last season. As such, food inflation is expected to average around 5% this year, which is still in the South African Reserve Bank’s inflation target band of between 3% and 6%.