Coming in at 5.7% year-on-year in January, Consumer Price Index (CPI) inflation in South Africa appears to have passed its peak of 5.9% in December. This is the view of Casey Delport, investment analyst at Anchor Capital.
Delport says the key drivers were once again food, energy and transportation costs. Importantly, core CPI (which excludes the volatile categories of food and energy costs) was a moderate 3.5%, albeit up from 3.4% in December.
“Although we remain concerned about upside risk to food and fuel inflation in the first half of the year, there should be strong favourable base effects in the second half. Core inflation is, however, expected to continue drifting higher as the economic recovery continues.
“Overall, the rise in local inflation has thus far lagged the global escalation, which can largely be attributed to South Africa’s weaker economic recovery as well as the relatively resilient rand exchange rate, which has been benefiting more than peers from terms-of-trade gains.
“In general, this latest figure was in line with our expectations and thus will not materially change our views.
“As we believe that inflation will remain relatively contained throughout 2022, any moves from the SA Reserve Bank (SARB) to hike interest rates, we believe, will be driven more by global pressures, as opposed to simply local factors,” Delport said.
She said it is important to remember that our real (after-inflation) interest rate remains somewhat low versus our peers, notwithstanding many advanced economies still having negative real rates.
“Looking ahead, we are still pricing in around four (or five including January’s rate increase) rate hikes of 25 basis points each, which would take us to the end of the year with a repo rate of 4.75%-5%,” Delport said.
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