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17 Apr 2018

CPI update: inflation falls to 3.8% y/y in March, assisted by continued low food inflation and fuel price relief

Annabel Bishop

Chief Economist

Figure 1: SA Consumer Inflation: history and Forecasts

CPI inflation dropped to 3.8% y/y in March from 4.0%y/y in February. Primarily on the back of a decline in fuel price pressure and sustained low food price inflation.

The outcome was below consensus expectations of a lift to 4.2% y/y.

On a quarterly basis CPI inflation eased to 4.1% y/y in Q1.18 from 4.7% y/y in Q4.17.

In March, the contribution from the fuel price component declined on the back of a petrol and diesel price drop of 36c and 47c/litre respectively. Consequently, annual fuel price inflation came out at 2.9% y/y from a prior 5.1% y/y. Fuel price pressures will however intensify in April, following a lift in the petrol and diesel price, accompanied by the addition of the fuel and road accident fund levies as legislated in the 2018 budget. Petrol will rise by 72c/litre and diesel by 65c/litre.

Additionally, the rate of food price inflation declined further in March, for the tenth consecutive month to 3.6% y/y, assisted by a decline in meat price inflation to 10% y/y, from 11.4% y/y in February. We could see the decline in food price inflation start to moderate in the next few months, as base effects from the drought start to dissipate.

Core inflation calculated as CPI excluding food and non-alcoholic beverages, fuel and energy prices remained unchanged in March, at 4.1% y/y, above the headline outcome of 3.8% y/y.

Additional consumer taxes set out in the 2018 budget, which came into effect from the 1st April will heavily impact inflation for the twelve months, commencing from Q2.18 and so elevate the CPI outcome.

With muted rates of household credit extension and an increased direct and indirect tax burden, demand led price pressures should pick up only mildly for the consumer. We forecast CPI inflation to moderate to 4.9% y/y for 2018, from 5.3% y/y in 2017, and come out at 5.4% y/y in 2019.

Figure 2: Contribution of different groups to the monthly change, y/y in the CPI
Figure 3: CPI: Food vs processed and unprocessed price inflation