Consumer inflation increased in June but was lower than markets’ expectations. Statistics South Africa data shows inflation rose to 4.6 % year on year up from 4.4 % in May.
The main drivers of annual increase were the housing and utilities and transport categories. Between May and June this year consumer prices were up by 0.4 %. This was mainly due to the faster pace of the increases in the cost of transport.
During the period fuel prices increased by between 82 and 85 cents per litre on the back a weaker rand exchange rate and higher international fuel prices.
Even though fuel prices have been increasing, food price inflation has remained steady. A basket of some of the basic food stuffs that most of people buy on a monthly basis includes brown bread, maize meal, oil, sugar and rice.
The prices of these goods may have gone down or remained the same over the past few months because of the bumper harvest following the drought in the country over the past year of two. The price of bread costs R12.04 at the beginning of the year, it’s down to R11.53.
The price of maize meal has gone down from R19.47 at the beginning of the year to R18.09.
This may change because of the inflationary pressures that we are seeing in the country which are mainly from the weak rand and the strong oil prices, leading to high fuel prices which will lead to increased transportation costs of goods from the farms to the factories and from the factories to the retailers. The costs which may be pushed to the consumer, increasing food prices.
Most of the CPI basket components remained unchanged on a monthly basis. Health and education inflation remained flat. Restaurants and hotels saw a slight drop during the same period.
Inflation is expected to continue on an upward trajectory, but should remain within the Reserve Bank’s 3-6% target bracket over the medium term. Economists say the upward pressure will likely be from the depreciation of the Rand, the effects of the VAT rate increase, higher fuel prices and a possible increase in food prices.
As a result, it is expected that the Reserve Bank will keep the repo rate unchanged. “This economy does not need any high interest rates at this point in time,” says Kruger.
She believes inflation will average at 4.6% for this year and 5.1% for next year, a bit lower than was earlier expected. Click below for more on the story: