CPI weights: 
Food: 14.2%
Fuel:  4.58% 

  • The fuel price has increased by 19c/l from Jan-Oct but by R1.18 from July 31 (from R12.86/cl to R14.04c/l). 
  • In October, the fuel price was 6.9% higher than the same in 2016. 
  •  If the status quo prevails – i.e. the oil price stays at around $61/bbl and the USDZAR at 14.10 or so – we could see a steep increase in the fuel price in December – probably in the vicinity of at least 50c/l or so. This could raise the annual rate of increase to about 12.5%. 
  • Impact on inflation: 
    • Direct impact:  An increase in the fuel price of this – which I have factored into the forecast (just now) – could raise the Dec’17 inflation rate from an expected 4.7% to 4.8%. (Sep CPI was 5.1%).  
    • In Q1 18, inflation could average about 4.7% but then rise by an average rate of about 5.2% or so in Q2 18.
    • The impact of a weaker ZAR could also start to filter through as there is an approximately lag of three to six months the depreciation of the ZAR and retail prices, In the past,  a 10% depreciation of the ZAR raised CPI inflation by about 2%. But because of weak demand, the pass-through effect has been much lower. My forecast already factors in a USDZAR of around USDZAR14.00 Q4 17 (although it could be weaker) and 14.30 for 2018. 
    • The electricity tariff increase granted to Nersa will determine the trajectory of inflation in H2 18. I have pencilled in an increase of 10%, which could see CPI inflation average of 5.7%. My guess is that Eskom could receive an increase of about 11% to 13%. The Reserve Bank appears to have factored in an increase of 5% in its forecast for 2018 and 8% in 2019.