This was the eight consecutive month that inflation was near the 4.5 percent year on year level favoured by the South African Reserve Bank. File Photo: IOL

JOHANNESBURG – Public transport inflation increased from 7.6 percent year on year in July to 9 percent year on year in August. Many minibus taxi operators made annual adjustments to their fares during August. 

The fare adjustment in August led to sporadic protest action. 

Statistics South Africa (Stats SA) reported on Wednesday that consumer price inflation increased from 4 percent year on year in July to 4.3 percent year on year in August. 

This was slightly higher than economists’ median expectation of 4.2 percent year on year. Nonetheless, this was the eight consecutive month that inflation was near the 4.5 percent year on year level favoured by the South African Reserve Bank (Sarb). 

The central bank’s Monetary Policy Committee (MPC) is busy with a bi-monthly meeting to consider inflation and other economic data in determining interest rates. 

The major drivers behind the rise in headline inflation during August were higher price pressures on food and non-alcoholic beverages, housing and utilities, transport, and recreation and culture. 

Food price inflation increased from 3 percent year on year in July to 3.8 percent year on year in August – the highest reading since February 2018. 

There was a broad increase in the inflation on different food items. However, a large component of this was due to base effects on the consumer price index (CPI) created by food price disinflation during the first half of 2018. 

On a positive note, some elements within the taxi industry is looking to the use of compressed natural gas (CNG) or liquified petroleum gas (LPG) as alternative fuels to make taxi fares more affordable. There are already 1,200 taxis in the country running on gas after being converted from petrol. 

The MPC will welcome another inflation reading near its 4.5 percent year on year target. 

However, the central bank has warned before that it expects inflation to accelerate during late-2019 and the first half of 2020. This trend is unlikely to change much when the MPC releases its revised inflation projections on September 19. 

As such, the central bank is unlikely to risk cutting interest rates this month. Policymakers will also reiterate that easier monetary policy is not a panacea for the country’s low economic growth trajectory. PwC also believes that the SARB will look to interest rate differentials with other major central banks – and the need to maintain a sizeable spread - during a period of fiscal strain and increased government borrowing. 

Lullu Krugel is a PwC Strategy& chief economist for Africa, and Dr Christie Viljoen is a PwC Strategy& Economist.

BUSINESS REPORT