Inflation in February ballooned on the back of rising medical and fuel prices to the highest level in four months, dashing South African consumers’ rate cut hopes.
Economists said on Wednesday that when the Monetary Policy Committee (MPC) meets next Wednesday, it is likely to keep interest rates on hold.
Statistics South Africa (Stats SA) said Wednesday that the consumer price index (CPI) rose to 5.6% year-on-year (y/y) in February, from 5.3% year-on-year (y/y) in January. Core inflation accelerated to 5% y/y from 4.6% y/y over the same period.
Trade union Uasa said they were concerned the latest inflation rate was a setback to workers’ hopes of interest rate cuts.
“Workers have faced rising fuel, food, medical, insurance and transport prices over the past two months,” said union spokesperson Abigail Moyo.
PPS Investments portfolio manager Luigi Marinus said that despite February being the ninth consecutive month that inflation was within the 3%-6% South African Reserve Bank’s 3%-6% target band, it still exceeded the 4.5% target set by the bank.
According to Stats SA, the increase was mainly attributed to housing and utilities, miscellaneous goods and services, food and non-alcoholic beverages and transport.
Momentum Investments economist Sanisha Packirisamy said higher medical insurance costs were the main reason behind the lift in core inflation. Higher fuel prices also contributed to the uptick in headline inflation.
She said medical insurance inflation spiked from 6.9% y/y in January to 12.9% y/y in February. This reflected big membership contribution hikes imposed by medical schemes in 2024, and the inclusion of all the tariff hikes in the February survey, as opposed to the typical bi-annual survey for medical aid rates.
Fuel prices drove higher transport inflation in February to 5.4% y/y from 4.6% y/y in January. Packirisamy said the fuel increases of above R1 per litre in March pointed to further upside pressure on transport inflation.
Early data from the Central Energy Fund indicated a slight increase of 14 cents per litre in the price of petrol (95, inland), but diesel (0.05%) users could expect a slight reprieve of 32 cents per litre in April.
“Tensions in the Red Sea and the extension of voluntary production cuts by the Organisation of the Petroleum Exporting Countries Plus are keeping international oil markets tight. The US Energy Information Agency forecasts oil prices to remain elevated at an average $88/bbl in the second quarter, which introduces upside price pressures domestically, especially if the rand remains weak,” said Packirisamy.
Prices of food and non-alcoholic beverages in February were unchanged for the month, helping to moderate food inflation to 6.1%, its lowest level since April 2022, said Nedbank Group’s Economic Unit.
The food subcategories showed a broad-based easing in price pressures, except for “sugar, sweets, etc.”, which still rose by 18.5%.
The Bureau for Economic Research had published lower inflation expectations for the first quarter of 2024 survey results, at 5.4% for 2024 and 5.3% for 2025. The driver for lower expectations in both years was the price setters (businesses and trade unions) of the economy.
“We maintain our view that the SA Reserve Bank will likely keep interest rates constant at 8.25% at the March interest rate setting meeting,” said Packirisamy.
Annabel Bishop, the chief economist at Investec, said in a note last week: “We continue to believe that the South African Reserve Bank will not cut its interest rate either this month or at its May MPC meeting, with July likely the first opportunity to do so.”
She said on Wednesday that CPI inflation was slightly above the Bloomberg consensus of 5.5% y/y.
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