Consumers are in for a reprieve in the coming months in South Africa as economic indicators point to food price inflation stabilising, while end-month data from the Central Energy Fund shows a likely petrol price cut for September.
Stats SA published the latest consumer price inflation figures for July, pegging headline inflation at a 13-year high of 7.8%.
While the figure will be a shock to the pockets of consumers, economists at the Bureau for Economic Research (BER), and Nedbank noted that it was not unexpected, with most analysts expecting 7.7%.
The biggest contributor to CPI came from the transport sector, led by fuel prices, up 53% year on year.
Food and non-alcoholic beverages rose by 9.7% year on year, while utilities increased 4% on the back of a 7.4% month-on-month jump in electricity and other fuel costs as Eskom’s annual tariff increase was implemented and surveyed by Stats SA.
However, the BER said that the picture is better for August’s data, which it said should decline along with the petrol price.
“On a more positive note, in August, the monthly CPI rate should decline on the back of the sharp fuel price decline at the start of the month. The rate of increase for food prices could also start to moderate in August, implying that the July figure may have signalled the peak in headline CPI,” the BER said.
This sentiment is echoed by Nedbank’s analysis, with the bank saying that inflation has likely peaked, and will continue to drop over the next year.
“July’s inflation outcome is likely the peak in the current cycle. Headline inflation is forecast to moderate gradually off a high base in the coming months, ending the year at 6.7%,” it said.
“We forecast headline inflation to average 6.7% over the whole of 2022. The downward trend should gain traction off this year’s higher base in 2023, with inflation forecast to reach the 4.5% midpoint of the Reserve Bank’s target range by around July next year. Inflation is forecast to average around 5.2% in calendar 2023.”
Analysis from the Pietermaritzburg Economic Justice and Dignity group shows that its food basket price is moderating. While prices are still increasing, the pace is slowing down. The group’s food basket was up marginally, by 0.6% month-on-month in August.
According to the Bureau for Food and Agricultural Policy (BFAP), there are three different scenarios for food price inflation in South Africa. The positive news is that in all three scenarios, food price inflation eases from current levels (10.1% in July).
In the first scenario, where global grain supply shocks persist, overall food price inflation for the year is expected at 6.5%, with meat products being most heavily affected at 10%.
In the second scenario, where local grain prices moderate due to favourable conditions in international markets, local food price inflation eases to 5.5% for the year.
The best-case scenario sees global production easing and grain stocks getting a boost, which would put food price inflation at 5.0%, and bring all food categories back into the Reserve Bank’s target range of 3% to 6%.
In a more practical example, the BFAP said a household basket of nutritional food for a family of four would show inflation of between 4.9% and 7.4% for the best- and worst-case scenarios, respectively.
The key driver behind economists’ more optimistic outlook for the next few months is the petrol price, which is expected to come down by over R2 in September.
Month-end data published by the CEF shows a significant over-recovery for petrol (93 and 95) with a more moderate over-recovery for diesel.
Petrol 95 could be cut by as much as R2.30 per litre in September, while diesel could come down by as much as R1.26 per litre. These cuts would put the petrol price at R23.13 per litre and diesel at R23.26 per litre.
This would put petrol prices back to levels seen before the steep hikes in June, but still around R3 more expensive than in February 2022, before the global pressures from Russia’s invasion of Ukraine took effect.
Local fuel prices are easing due to a lower oil price and stronger rand – though both of these metrics have come under continued pressure throughout the month.
Oil prices have accelerated slightly to above $100 a barrel – from around $96 a barrel at the start of the month – while the rand has been largely driven by global markets, specifically sentiment around the United States Federal Reserve and its appetite to hike interest rates.
As things stand at month end, oil is trading higher at around $102 a barrel, as traders weigh risks to the supply outlook against pledges from leading central banks to raise interest rates further.
The rand, meanwhile, is trading slightly stronger at R16.92 against the dollar on Monday, after trading around the R17.00/$ mark for most of last week.
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