Inflation set to breach the 6% ceiling of bank’s target

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Inflation at 5.9 percent last month came close to the ceiling of the Reserve Bank’s 3 percent to 6 percent target range.

The figure, released by Statistics SA on Wednesday, was up on the 5.4 percent in January and above expectations of 5.6 percent.

Ian Cruickshanks, an independent strategic analyst, described the data as “really bad news”. The cumulative effect, he said, would prompt higher wage demands and this, in turn, would ripple back into higher inflation. He predicted a winter of discontent.

Elna Moolman, the South Africa economist at Renaissance Capital, commented: “We now expect that inflation could breach the target ceiling sooner and for a slightly longer period than we previously anticipated.” Moolman added that the breach of the ceiling could come this month, “partly owing to the quarterly survey of rental costs”.

A breakdown of the overall consumer price index (CPI) shows the major drivers were electricity, up 10.1 percent, and petrol, up 11.9 percent. The former has a weighting of 4.18 percent in the CPI while the latter contributes 11.9 percent. Kevin Lings, the chief economist at Stanlib, noted the role of insurance, which rose 8.3 percent and represents 9.92 percent of the CPI.

Reserve Bank governor Gill Marcus blamed medical insurance for the “upside surprise” in the CPI data.

Vunani Securities economist Ilke van Zyl said medical aid premiums rose 10.5 percent year on year and 9.9 percent month on month. “The weight of premiums rose markedly in the new basket, leading this otherwise insignificant surprise to have a meaningful impact,” Van Zyl said.

But food inflation, previously an important driver of total inflation, edged down to 6.3 percent from 6.4 percent in January, 7 percent in December and a peak of 7.5 percent in November. And, between January and February, food prices fell 0.7 percent. Prices of bread and cereals dropped nearly 1 percent, while meat prices fell 1.7 percent.

Domestic food price increases have moderated along with the global trend. The UN Food and Agriculture Organisation reported earlier this month that its food price index averaged 210 points in February, unchanged from January but five points (2.5 percent) below the corresponding month last year.

Prices of telecoms equipment – largely cellphones – fell year on year by 8.7 percent and month on month by 1.9 percent. However, this component contributes just 0.13 percent to CPI.

Standard Bank economist Shireen Darmalingam said core inflation, which excludes food, non-alcoholic beverages, petrol and energy, also accelerated in February to 5.3 percent from 4.7 percent in January.

Annabel Bishop, the group chief economist at Investec, said: “The new calculation method (particularly the changes in the weights for the different price categories) means there is little history on the new measure of headline CPI.” – Ethel Hazelhurst


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