Consumer inflation rose at faster pace in January

Consumer inflation rose at a faster pace in January, in line with expectations, according to data released by Stats SA on Tuesday.

Annual consumer price inflation (CPI) was 4.5% in January, up from 4.0% in December, buoyed by, among other factors, increases in fuel prices. This was close to market expectations, which saw inflation coming in at 4.6%, according to a Bloomberg survey.

Despite January’s uptick, at this level, inflation has been at or below the midpoint of the SA Reserve Bank’s target range of between 3% and 6% since December 2018.

SA’s economy remains weak and, along with a lower inflation environment, prompted the Bank to cut interest rates by 25 basis points (bps) at its last meeting in January. The Bank expects inflation to average 4.7% this year. 

The main drivers of the annual increase, according to Stats SA, included food and non-alcoholic beverages, housing and utilities, as well as transport.

Food and non-alcoholic beverages, which makes up about 17% of the CPI basket, increased by 3.7% year on year, contributing 0.6 of a percentage point to the total annual rate,

Housing and utilities, which includes owners’ equivalent rental and makes up almost 25% of the inflation basket, increased by 4.7% year on year, and contributed 1.2 percentage points to the increase.

The transport component was another key feature increasing by 6.4% year on year. Fuel prices rose 13.7% on an annual basis. Ahead of the print, economists had expected fuel price base effects to contribute to a lift in the inflation number.

According to Investec’s Kamilla Kaplan this is thanks to the influence of the fuel price changes in January 2019 on the changes in this year’s annual fuel price inflation rate.

January 2019 saw “sizeable” petrol and diesel price cuts of 123c/l  and 154c/l, respectively. The fuel price decrease in January 2020 — when it was cut by 14c/l — was comparatively much smaller, and  translated to double-digit, year-on-year growth, Kaplan said in a recent note.

She noted that fuel price base effects are likely to be a theme on consumer inflation outcomes throughout the first quarter of this year.