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Consumer inflation speeds up, led by food prices

| Economic factors

Consumer inflation moved further outside the Reserve Bank’s 3%-6% target range in October, as some economists had expected.

The consumer price index increased 6.4% in October from a year earlier, Statistics SA said on Wednesday, after the 6.1% increase reported last month for September.

Forecasts varied, with some economists calling for a rise of has high as 6.4%. The Bloomberg consensus was for a forecast of 6.2% and Trading Economics put it at 6.1%.

The Reserve Bank announces its monetary policy committee’s decision on interest rates on Thursday, but it looks at inflation expectations for the next six months in its deliberations, so the CPI increase is unlikely to affect its decision.

At previous meetings the Bank has said that although consumer inflation has consistently been higher than the target for most of this year, it seemed stable at those levels.

The Bank is widely expected to leave the repo rate at 7%, with achingly slow local economic growth expected to outweigh international considerations such as a high probability that the US Federal Reserve will increase rates when it meets in two weeks’ time.

Higher US interest rates are an incentive for investors to favour the dollar over the much riskier rand, as they lower the premium earned from holding rand compared with dollars. A weaker rand is an inflationary risk.

Food and fuel

One of the factors in October’s acceleration was fuel prices; petrol increased by 45c a litre at the beginning of the month, with a similar increase taking effect in November.

The transport component of the CPI rose 4.3% from a year earlier in October, accelerating from 3.5% in September, and its contribution to the year-on-year CPI increase grew to 0.7 percentage points, from 0.6 points in September.

The October and November fuel price increases follow an 18c fall in September and a 99c fall in August, when CPI came in at 5.9%.

Food prices have also been a headache for consumers, as a result of a long and severe drought.

The CPI for food and nonalcoholic beverages was 11.7%, year on year in October, contributing 1.8 percentage points to the overall increase, from 11.3% and 1.7 percentage points in September.

Stanlib economist Kevin Lings said most of the anticipated drought-related food price surges were reflected in the data.

“Furthermore, the increase in summer rainfall suggests that SA should experience a very welcome improvement in the agricultural season ahead. This should lead to a meaningful moderation in food inflation during 2017, which in turn will help to bring headline consumer inflation back inside the target range within the next six months.”

He noted the 0.9% increase in food prices from a month earlier, which included:

• a 2.1% month-on-month rise in vegetable prices (14.8% year on year);

• a 1.1% month-on-month increase in fish prices (9.7% year on year); and

• a 1% month-on-month jump in the price of oils and fats (14.4% year on year).

Stripping out food and petrol, CPI was within the inflation target at 5.8% year on year, he noted, while core inflation — which excludes electricity as well as food and fuel — edged up to 5.7% up from 5.6% in September, but also still within the target range.

Lings also said fuel prices should start falling again in December.

Compared with a month earlier, the CPI rose 0.5% in October, more than twice as fast as the 0.2% seen in September. 

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