Tue, 03 Aug 2021

Inflation hits 30-month high

23 Jun 2021, 22:10 GMT+10

Annual consumer inflation has reached its highest level in 30 months, rising to 5.2% in May from 4.4% in April, Statistics SA reported on Wednesday.

The CPI increased by 0.1% between April and May 2021.

 Source: Statistics SA

The main contributors were large increases in food and non-alcoholic beverage prices, which rose by 6.7% year-on-year. Some food prices rocketed, with sunflower oil and tomato prices up by more than 30% between May last year and May 2021.

Transport prices also increased by 15.3% in the past year, reflecting a 37% rise in fuel prices after oil recovered from low points reached during hard lockdown.

Last year's sharp decline in commodity prices, which contributed to establishing a low base in 2020, had a big effect on May's inflation rate, says Johann van Tonder, economist at Momentum Investments. "For instance, crude calculations show y/y headline CPI could have been 3.7% in May if the effect of the low base on fuel price increases were removed."

The consumer inflation rate is now dangerously close to breaching the SA Reserve Bank's upper target level of 6%. Combined with stronger-than-expected economic growth so far this year, this may convince the monetary policy committee to increase interest rates.

"It is possible that some MPC members will start turning hawkish and vote for a 25-basis-point increase in the repo rate in one or more of the next three MPC meetings this year," says Van Tonder.

"However, they are likely to first ascertain whether the current pace of increases in commodity prices will persist, whether strong second-round inflation takes hold and for base effects to work its way out of the system. Within this context, the first increase in the repo rate is expected in the first half of 2022."

Source: News24

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