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Press Release – 2018/03/18: SEIFSA WARNS OF POSSIBLE END OF INFLATION REPRIEVE

By 23rd Mar 2015 Sep 20th, 2019 No Comments

Speaking after the release of the CPI figures by Statistics South African today, SEIFSA Economist Tafadzwa Chibagunza said that given the dynamics at play, there is a possibility that the falling CPI had reached the bottom of the trend and an upward pressure in the index could be anticipated from now on.

The CPI recorded a year-on-year increase of 3.9% in February 2015, which is down from the year-on-year 4.4% recorded in January 2015.

“This reading and continual easing of inflation was to be expected given the 93c/litre decrease in petrol for February 2015. The rand against the US dollar also traded in a fairly sideways pattern in February, opening the month at $1/11:62, strengthening down to about $1/11:35 and finishing the month at $1/11:65, all in all averaging $1/11:57 on a trade-day weighted basis,” Mr Chibanguza said.

In terms of contribution to the annual increase, the other sub-components of the index either did not move or moved marginally. The combination of these factors is in line with the lower reading.

“However, the real story about consumer inflation is what will happen from now on. We anticipate upward pressure in consumer inflation in the very near short term, ending the short-lived reprieve consumers have enjoyed so far,” Mr Chibanguza said.

He added that the weaker rand posed significant direct and indirect upside risks to the components in the CPI. Against the dollar, the local unit has depreciated 7% from the end of February to date. The impact of the currency was cross cutting across most of the components in the CPI.

There is an expectation of a R2/litre increase in the price of petrol in the coming weeks. This is the result of a relatively stronger oil price, a significantly weaker exchange rate and the fuel levies announced in the national budget. Transport makes up 16.43% of the index.

Mr Chibanguza said that, in addition, the drought in farming regions has significantly affected the harvest and that lower supply will cause food prices to rise and imports to supplement this weaker supply at current exchange rate levels will also contribute upward pressure to food prices. Food and non-alcoholic beverages make up 14.2% of the index.

Lastly, the alcoholic beverages and tobacco portion – which makes up 5.43% of the index – will also contribute to upward pressure in the CPI, given the increase to sin taxes announced in the national budget.

“All in all that sums up to 37% of the components of the CPI with a direct risk of increasing, not to mention second-round effects of both fuel price increases and a weaker exchange rate on the other components of the index,” Mr Chibanguza said.