Annual consumer inflation eased to 4.9% in June after it reached a 30-month high of 5.2% in May, according to Statistics SA (Stats SA).
It said on Wednesday that the monthly increase in the consumer price index (CPI) was 0.2%, versus May’s 0.1%, but lower than the 0.5% increase recorded between May and June 2020.
Effect on workers
Abigail Moyo, spokesperson of UASA, said the trade union is concerned about the effect of inflation on workers, saying the cost of living remains high.
“The main contributors to the 4.9% annual inflation rate were in the basic necessities category such as food and non-alcoholic beverages (NAB), housing and utilities, transport, and miscellaneous goods and services – all inflation drivers that make it hard for workers to make ends meet. The rising cost of basic necessities has many households struggling to cover their household costs.”
UASA is urging government and business owners to consider affordable pricing for basic needs and services.
“Thousands of jobs were shed due to the pandemic and the unrest of the past two weeks, which means many are still struggling to make ends meet.”
According to Nedbank’s Group Economic Unit, core inflation increased marginally, up to 3.2% year on year (May: 3.1%), as economic activity gradually resumed relative to the strict lockdown in the same month last year.
“Goods inflation slowed to 7.1% in June from 8% in the previous month, as the prices decelerated for durable (4.3% from 5%), semi-durable (2.1% from 2.6%) and non-durable goods (8.6% from 9.5%). By contrast, services inflation grew by 2.9% after hovering between 2.6% and 2.7% in the preceding four months. Over the month, core inflation rose by 0.3%.”
Fuel prices increased by 27.5% in June year on year (May: 37.4%; April: 21.4%), according to Stats SA.
These relatively high rates come off a low base recorded during 2020’s second quarter when fuel prices were depressed.
The price of inland 95 octane petrol dropped to R12.22 per litre in May 2020, during the Covid-19 lockdown – the lowest reading since September 2016 (R12.17). The price then rebounded in June 2020 (R13.40), eventually rising to R17.32 in April 2021, before falling slightly to R17.13 per litre in June 2021 (see graph below).
Month-on-month, fuel prices decreased 0.2% between May 2021 and June 2021. “The price of inland 95 octane petrol edged lower by 10c a litre in the month. Diesel prices, on the other hand, increased by an average of 0.7%,” said Stats SA.
“Diesel recorded an annual increase of 25.5% in June, lagging behind petrol’s rise of 28.2%. The average price for a litre of diesel in June was R16.31 per litre.”
Annual food and NAB inflation was unchanged at 6.7% in June, but there was an average price increase of 0.2% between May and June.
“Oils and fats have seen steadily increasing prices since February 2019, when an annual rise of 1.2% was recorded. In June 2021, the annual increase was 21.6%.
“Cooking oil products in particular have recorded sharp increases. In June 2020, the average price of a 750 ml bottle of sunflower oil was R20.99, rising to R29.45 in June 2021,” said Stats SA.
“Meat inflation continued to accelerate too, reaching an annual rate of 8.6% from a 12-month low of 4.1% in August 2020. Lamb prices increased by 10.9%, stewing beef by 16.7% and pork by 10.5%.”
Stats SA also released the results of its latest quarterly housing rentals survey.
“Actual rentals increased by 0.4% and imputed rentals by 0.6% in June. In March 2021 both actual and imputed rentals dipped by 0.2%, and in June 2020 both increased by just 0.1%.”
Reserve Bank interest rate decision
“Although prices are expected to return to trend in the months ahead, food and fuel supply constraints caused by the recent unrest in crucial parts of the country pose significant upside risks to the outlook. Global oil prices have retreated following the announcement of increased supplies by major oil exporters, which is likely to partially offset the impact of weaker rand,” says Nedbank’s Group Economic Unit.
“Furthermore, concerns over the surge in global inflation and the earlier-than-expected normalisation of global monetary policy also poses upside risk to the inflation outlook.
“In light of the above, the fragile economic state caused by the protests and the worsening third wave of Covid-19, the Sarb [South African Reserve Bank] will probably hold off hiking interest rates this year. We anticipate the hiking cycle to begin in early 2022.”
Anchor Capital investment analyst Casey Delport also sees Sarb holding interest rates at the Monetary Policy Committee (MPC) interest rate announcement on Thursday.
“This latest print continues to indicate the current higher inflation numbers are indeed transitory, and will continue to trend downwards for the remainder of this year as the low base effects dissipate,” says Delport.
“The rand’s trajectory will still likely drive the timing and pace of the pending interest rate hiking cycle. The sharply higher food and fuel prices may lift the bank’s near-term inflation forecasts and the bank may also express concern about the inflationary consequences of the unrest (via potential rand weakness and/or supply constraints). However, provided that the rand remains reasonably resilient – bearing in mind that the Sarb has already assumed a weaker exchange rate over the medium term – the Sarb is likely to continue to see the fuel and food pressures as short-lived.”
Delport says the bank reiterated at its last MPC meeting in May that it would look beyond any temporary inflation pressure.