The interest rates cuts cycle could well be truly over for South African consumers as inflation ticked up in March due to rising food and beverages, and transport prices. Photo: African News Agency (ANA)
The interest rates cuts cycle could well be truly over for South African consumers as inflation ticked up in March due to rising food and beverages, and transport prices. Photo: African News Agency (ANA)

Inflation on the upside but no need for concern

By Siphelele Dludla Time of article published Apr 22, 2021

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JOHANNESBURG - THE INTEREST rates cuts cycle could well be truly over for South African consumers as inflation ticked up in March due to rising food and beverages, and transport prices.

Data from Statistics South Africa (StatsSA) yesterday showed that the annual inflation rate rose to 3.2 percent in March from 2.9 percent in February.

The headline consumer price inflation (CPI) print was in line with market expectations but still remained at the low end of the SA Reserve Bank’s (SARB) target range of 3 to 6 percent.

StatsSA said the main upward pressure came from prices of food and non-alcoholic beverages which rose 5.7 percent in March, from 5.2 percent in February, the highest rate since October 2016.

Fuel prices in March 2021 were on average 2.3 percent higher than they were in March 2020, the first time in 12 months that fuel prices have increased on an annual basis.

Anchor Capital’s investment analyst Casey Delport said consumer prices were set to continue rising with the economy reopening again after the stricter lockdown restrictions were eased on 1 February.

“Looking ahead, headline CPI is projected to continue to accelerate over the next couple of months before moderating again in the second half of the year,” Delport said.

SARB’s Monetary Policy Committee (MPC) last month warned that the next change in interest rates could be upward. The central bank forecasts inflation to increase to an average of 4.9 percent year-on-year during the second quarter.

In March, the MPC unanimously decided to keep interest rates on hold at 3.5 percent, following a 3-percentage point cut in the repo rate last year.

PricewaterhouseCoopers’ chief economist Lullu Krugel said March’s inflation report continued to reflect

a very favourable retail price environment for consumers hard hit by an economic recession.

Krugel, however, said policymakers needed to consider the start to normalisation of monetary policy, with economic growth returning and inflation returning to the mid-point.

“While the SARB’s internal modelling suggests two 25 basis points increase in lending rates is needed in the second and fourth quarters of 2021, we believe a tightening of monetary policy is unlikely until early in 2022,” Krugel said.

Momentum economist Sanisha Packirismay said that interest rates would remain unchanged this year as the average headline CPI for 2022 and 2023 was expected around the 4.5 percent mark.

Packirisamy said April’s CPI will experience further pressure to increase from fuel prices and Eskom’s 15.63 percent increase in electricity tariffs.

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