13 Dec 2017

CPI Update: CPI inflation moderates in November to 4.6% y/y from a prior 4.8% y/y on a lower fuel price increase

Annabel Bishop

Chief Economist

The rate of CPI inflation slowed to 4.6% y/y in November from 4.8% y/y in October. The rate slowed by more than market expectations of 4.7% y/y.

Figure 1: SA Consumer Inflation: History and Forecasts
  • The rate of CPI inflation slowed to 4.6% y/y in November from 4.8% y/y in October. The rate slowed by more than market expectations of 4.7% y/y.
  • The main influencing factor on the CPI outcome was the lower fuel price increase relative to the prior month and relative to November 2016. Specifically, petrol and diesel prices rose by 4 and 23 c/litre respectively in November versus the increases of 29 and 42 c/litre in October and 45 and 63 c/litre in November 2016.
  • Consequently, the contribution to headline CPI from the fuel price component decreased to 0.4% in November from 0.5% previously. In addition to the lower fuel price increase, the rate of inflation in the remaining components of the transport category (purchase of vehicles, other running costs and public transport) all slowed, resulting in a decline in the contribution to 0.6% from 0.8% (see figure 3).
  • Food price inflation, the other key driver of CPI inflation, continued to moderate in November, to 5.0% y/y from 5.3% y/y previously and from double digit growth in 2016 and Q1.17. This is reflective of the gradual deceleration in manufactured food price inflation, which in turn has been influenced by deflation at the agricultural level. A record maize harvest in 2016/17 along with the favourable maize supply outlook for the 2017/18 year have supported the decline in maize prices (see figure 4).
  • Core inflation also came in lower at 4.4% y/y than both consensus and the prior outcome of 4.5% y/y. Core inflation has subsided from a recent peak of 5.9% y/y in December 2016 likely on account of the lagged effects of past rand appreciation and the persistent absence of material demand led inflationary pressures.
  • For the year as a whole CPI inflation is estimated to average 5.3% y/y compared to 6.3% y/y in 2016. However, for 2018 and 2019 we forecast CPI inflation to rise to 5.7% y/y and 5.8% y/y respectively on a strengthening global cycle, a further lift in commodity prices and higher local administered tariffs.
  • At its last MPC meeting in November, the SARB noted that the upside risks to the inflation outlook prevail and in the main include the rand exchange rate, the pace of global monetary policy normalisation and electricity tariffs. On the latter, NERSA is scheduled to announce its decision on the 15th of December regarding the 19.9% tariff increase application by Eskom.
Figure 2: Contributions of good and petrol to annual CPI inflation
Figure 3: Contribution of different groups to the annual change, y/y in the CPI
Figure 4: White and yellow maize prices