While South Africa’s headline inflation rate cooled in November, falling 0.2 percentage points to 7.4% compared to last year, food price inflation accelerated by a seventh consecutive month, while transport recorded its fourth consecutive month of deflation. The three categories with the highest annual inflation rates in November were transportation (15.3%), food and non-alcoholic beverages (12.5% vs. 12.0% in October), and hotels and restaurants ( 7.9%). The main driver of the increase in food and non-alcoholic beverages was bread and cereal inflation, which reached an annual rate of 19.9% in November, up from 19.5% in October, mainly. .
While South Africa’s headline inflation rate cooled in November, falling 0.2 percentage points to 7.4% compared to last year, food price inflation accelerated by a seventh consecutive month, while transport recorded its fourth consecutive month of deflation.
The three categories with the highest annual inflation rates in November were transportation (15.3%), food and non-alcoholic beverages (12.5% vs. 12.0% in October), and hotels and restaurants ( 7.9%). The main driver of the increase in food and non-alcoholic beverages was bread and cereal inflation, which reached an annual rate of 19.9% in November, up from 19.5% in October, significantly higher than modest 2.3% recorded. in November 2021.
A 2.5kg bag of maize meal cost an average of R34.08 in November, up from R33.82 in October and R25.591 over 12 months ago and on average the price of ‘a loaf of white bread rose to R18.68. in November from R18.54 in October, while a year ago it was R15.68.
The annual rate for meat was 10.5% in November, unchanged from October, with bacon up 6.4% from October and other pork products up 1, 9% Milk, eggs and cheese cost 10.9% more than 12 months ago, while the annual rate of change in the oils and fats index fell for the third consecutive month, from 25.7% to in October to 24.8%. The average price of a 750ml bottle of sunflower oil was R38.12 in November after peaking at R45.33 in July.
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Inflation slightly weaker than expected
Economic research group Oxford Economics Africa says the decline in the inflation result was only slightly weaker than its expectations and the consensus forecast of 7.5% compared to last year.
Housing and public services (+4.3% and contributing 1.1 percentage points), transport (+15.3% and contributing 2.2 percentage points) and miscellaneous goods and services (+4.8% and contributing 0.7 percentage points) were other main contributors to the inflation rate.
Core inflation, which excludes volatile items such as food, non-alcoholic beverages, fuel and energy, was flat at 5.0% compared to last year, while the data also showed that goods inflation moderated from 10.5% compared to last year to 10.4% year-on-year. in November, while annual services inflation slowed by 0.1 percentage points to reach 4.5% most recently.
The group says further disinflation should see South Africa’s average inflation rate to 6.9% this year, although a lower reading is more plausible than a higher one, compared to the 4, 5% from 2021.
“Next year, the average global inflation rate is expected to be 6.0%. We maintain the view that price inflation will remain at high levels, but will gradually decline over the coming months. The Reserve Bank of South Africa has said it remains committed to stabilizing inflation expectations more firmly around the midpoint of the 4.5% inflation target band.
The group therefore anticipates a further 50 basis point increase in the repo rate in the first quarter of 2023, which will take the repo rate to 7.5%. “South Africa should return to a positive real interest rate in the first quarter of next year.”
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Reluctance to spend continues
Retail sales data also continued to disappoint in October as consumers feel the pinch from higher living costs, with seasonally adjusted retail sales rising 0.4% in October compared to with September, when they only increased by 0.2%. Retail sales fell 0.6% year-on-year, the second consecutive decline.
The softer increase was a 0.6% decline from 12 months ago, slightly weaker than the consensus expectation of a 0.4% decline. Oxford Economics Africa says it noted that the impact of high inflation and higher interest rates is eroding purchasing power as households are squeezed.
This can be seen in the data for hardware stores (-4.8%), pharmacies (-3.4%) and food, beverages and tobacco in specialized stores (-2.3%). Third-quarter national accounts data revealed that household finances are strained, and October’s retail sales figures marked the second consecutive annual decline.
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Negative outlook for the economy
The group also says that October’s Index of Consumer Confidence (ICC) survey showed that while households expect to see an improvement in their finances over the next 12 months, perceptions negative views on the economic outlook imply that most South Africans still foresee a decline. economic outlook and consider the current time to be unsuitable for purchasing durable goods.
“Retail sales figures are expected to be higher in November, driven by increased shopping activity as consumers delayed purchases in anticipation of so-called Black Friday deals. That said, the high-cost environment means shoppers likely favored non-durable household goods.
“We believe consumers will continue to feel the squeeze from high living costs after the South African Reserve Bank raised interest rates by 75 basis points in November, and further rate hikes are expected in early 2023,” the group says.
