The stunning May inflation rate increase to six,5% introduced on Wednesday morning, spells trouble for consumers who’re already battle to make ends meet.
It is now nearly sure that the repo rate will increase by 50 foundation factors in July, that may imply one other increase in rates of interest for already closely indebted consumers.
Food and gasoline costs pushed inflation to the best rate in 5 years in May, with annual shopper worth inflation rising by 0,7% from 5,9% in April and March, in keeping with Statistics SA. This is the best studying since January 2017 when the rate was 6,6%.
Transport, meals and non-alcoholic drinks accounted for simply over half of the annual rate. Fuel remains to be a significant contributor to the inflation rate, which might fall to five,1% to six,5% if the influence of the gasoline worth is eliminated.
Diesel costs elevated by 8,1% between April and May, taking the annual rate to over 45%, whereas petrol price nearly 27% more than in May 2021.
Food and non-alcoholic beverage costs elevated by 2,1% between April and May, the most important month-to-month increase since February 2016, primarily pushed by sunflower oil, that price nearly 40% more than a yr in the past, whereas costs elevated by 16,1% between April and May.
ALSO READ: May inflation highest in 5 years as a result of meals and gasoline costs
Main contributors and core inflation
The primary contributors to the annual inflation rate had been:
- meals and non-alcoholic drinks (+7.6% and contributing 1.3 proportion factors (ppt)
- housing and utilities (+4.9% and contributing 1.2 ppts)
- transport (+15.7% and contributing 2.1 ppts)
- miscellaneous items and providers (+3.9% and contributing 0.6 ppt).
Core inflation, which excludes risky objects comparable to meals, non-alcoholic drinks, gasoline and power, elevated by 0.2 ppt to succeed in 4.1% in comparison with May 2021, which is in keeping with the continued restoration momentum in shopper demand.
Until now core costs stayed under 4.0% since November 2019.
Goods inflation accelerated from 8.5% to 9.5% in comparison with May 2021, whereas annual providers inflation elevated to three.6%, in comparison with 3.5% in April.
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‘Utterly shocking’ increase in inflation
Prof. Jannie Rossouw, visiting professor on the Wits Business School, says the increase is totally stunning, however he doesn’t count on the Monetary Policy Committee (MPC) of the South African Reserve Bank (Sarb) to increase the repo rate by 75 foundation factors because the Federal Reserve did within the US.
“I think the MPC will not follow the Fed and will rather keep the increase as small as possible and see what the consequences are.”
Economic analysis group, Oxford Economics Africa, says the increase in inflation was approach above the consensus forecast for a 6.1% year-on-year increase.
“Although the May inflation figures came in hotter than we expected, it plays into our above-consensus forecast of 6.2% in 2022 subject to be revised higher in the coming months.”
The group says the increase additionally implies that the South African Reserve Bank (Sarb) will hike the repo rate by 50 bps throughout its upcoming coverage assembly in July, with more frontloading prone to observe, which might see the repo rate finish the yr at 6.0%.
“The US Fed’s ‘no more Mr Nice Guy’ approach to surging inflation places the Sarb under pressure to be more attentive to the rising risk of currency depreciation and attempts to curb foreign investment outflows.”
Oxford Economics Africa says it’s secure to say that headline inflation will peak properly above 7.0% in comparison with 2021, in comparison with its earlier expectations of a crest of between 6.5% and 6.8%.
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Revised forecast
Luigi Marinus, portfolio supervisor at PPS Investments, says inflation is now averaging barely lower than 6% for 2022 to this point.
”The Sarb has been forward of the curve by way of rising quick time period rates of interest earlier than inflation moved above the highest finish of the goal band, however these will increase haven’t carried out sufficient to maintain inflation low, however that is largely because of elements such because the oil worth and a normal increase in world inflation.”
Marinus says though native inflation is a priority, the motion of the US Fed might have a bigger affect on asset costs globally as they steadiness rising rates of interest to cut back their extraordinarily excessive inflation degree in opposition to the detrimental impact which will have on GDP development.
Adriaan Pask, chief funding officer at PSG Wealth, says the Sarb forecast of headline inflation for 2022 is revised greater to five.90% (from 5.80%), as a result of greater meals and gasoline costs.
“While food prices are expected to remain elevated, fuel price inflation should ease in 2023, helping headline inflation to ease to 5%, despite higher core inflation. Headline inflation of 4.70% is now expected in 2024.”
