Food price inflation has proven sticky, having also stood out as the major contributor to still-elevated prices in January when it increased to 13.8%. Photo: Supplied
Inflation unexpectedly rose in February, reaching 7% year-on-year, according to data released by Statistics South Africa on Wednesday.
Analysts were expecting inflation to continue on its downward trajectory last month after easing to 6.9% in January, from 7.2% in December. The biggest driver in February, according to the data, were food and non-alcoholic beverage prices, which increased 13.6% year-on-year — marking the highest reading since April 2009.
Food price inflation has proven sticky, having also stood out as the major contributor to still-elevated prices in January when it increased to 13.8%. In February, it rose even higher to 14%, off the back of high bread and cereals, oils and fats and processed food prices.
Responding to January’s data, the Agricultural Business Chamber noted that the price increases in bread and cereals reflect a continuation of the pass-through rises that food manufacturers felt during much of 2022.
The chamber further noted that the production costs associated with load-shedding might not have been fully factored in the January figures and are likely to show in the coming months.
Before the period of more severe blackouts in December and January, the chamber expected consumer food price inflation to slow to between 5.5% and 6% in 2023, down from 9.5% in 2022. The chamber now expects this figure to be higher.
In January, the South African Reserve Bank’s monetary policy committee (MPC) forecast that food price inflation would be 7.3% in 2023, up from its previous expectation of 6.2%.
The MPC will meet again next week to decide whether South Africa’s ailing economy can endure another interest rate hike. The Reserve Bank delivered a dire prognosis of the health of South Africa’s energy crisis-hit economy at its latest MPC meeting, forecasting that the economy would grow by only 0.3% in 2023.
The MPC lifted the repo rate by a more moderate 25 basis points (bps) at the January meeting, bringing the rate to 7.25%.
Though another repo rate hike is unthinkable given the condition of South Africa’s economy — which contracted 1.3% in the last quarter of 2022 — sticky inflation as well as the rand’s recent weakness may force the MPC’s hand.
Analysts will also be watching out for what the US Federal Reserve does on Wednesday.
Data released last week showed an uptick in monthly core inflation in the US in January, which on its own “would have cemented a 25 bps hike, if not swayed the odds to a 50 bps increase”, the Bureau for Economic Research noted. However, the collapse of Silicon Valley Bank has changed expectations of the Fed’s continued hawkishness.
Investors have adjusted their rate hike expectations down to 25 basis points, Nedbank’s economists noted this week, “after the turmoil in the banking sector clouded the already murky landscape even further”.
