Consumer inflation remains on a downward trend

Consumer inflation remains elevated despite continuing to fall in line with expectations. Annual consumer price inflation in December was 7.2%, down from 7.4% in November, according to Stats SA data.

The main contributors were food and non-alcoholic beverages, housing and utilities as well as transport categories.

In 2022, inflation averaged 6.9%, with food and fuel prices being the main drivers due to the impact of the Ukrainian war.

Consumer inflation continues on a downward trajectory but remains elevated:

[embedded content]

In December, food and non-alcoholic beverages increased by 12.4% year-on-year, with the largest price increases recorded in the oils and fats as well as bread and cereals categories. Transportation increased by nearly 14%.

During the month, the price of petrol increased by 59 cents per litre, while diesel went down by R1.57 per litre.

Experts say inflation will likely continue slowing as the year progresses.

Consumer Economist at Liberty, Zandile Makhoba says, “There are signs that we are going to see this inflation move continues on the downward trajectory. Mainly the petrol price is expected to continue to go down. We are expecting a decrease in February and we think that it will continue as the threat of global recession starts to hit on the oil price itself, so Brent crude oil is expected to trend downwards at least in the first half of the year.”

With consumer inflation still above the Reserve Bank’s target bracket of 3 to 6%, it means the central bank will likely continue hiking interest rates to try and bring it under control.

Chief Economist at Investec, Annabel Bishop says, “We expect that as we go through 2023 that inflation will drop down to the midpoint of the inflation target around the middle of the year. And of course, the SA Reserve Bank is quite likely to reduce the steepness of its interest rate hikes as a consequence that inflation is starting to show further moderating.”

However, upside risks to inflation remain. One example is the 18.65% electricity tariff increase granted to Eskom by energy regulator Nersa.

CPI cools to 7.2% in December 2022

[embedded content]