CPI update: inflation rises marginally on higher domestic costs


• March’s CPI inflation rate ticked up to 7.1% y/y (1.0% m/m), from 7.0% y/y in February, with a substantial, unexpected contribution from the residual of 0.2% m/m as price pressures broadened.
• Food price pressure contributed 0.2% to CPI inflation on the month, with the inflation rate for food at 14.4% y/y, up 1.0% m/m, and contributing just over a third (2.4% y/y) of the annual CPI inflation rate of 7.1% y/y.
• Upwards pressure came from a cumulation of domestic price pressures influencing food prices at the retail level, notably including higher domestic production costs and rand weakness y/y.
• Indeed, about half of the rise in domestic food prices, at 14.4% y/y, is due to rand weakness, and the rest to rising domestic costs, particularly load shedding and other input costs to the agriculture production process, including transport costs.
• The rand has depreciated by close to 20% y/y, and with SA a price taker for most agricultural food it produces via import, or export, parity pricing, the international cost of food prices in USD terms, substantially impacts SA food prices.
• International food prices fell by -11.7% y/y in March, but this drop was essentially wiped out by the 18.8% upwards price pressures food prices in SA due to the depreciation of the rand against the USD dollar by 18.8% y/y.
• Agriculture inputs such as fertilisers, agri chemicals etc saw huge price increases over the last twelve months, while self-generation electricity costs are an additional factor, as is loss and wastage.
• Food produced in SA at the agricultural level has a one-to-two-month lag with retail, or CPI, level food prices, and the agricultural producer price inflation rate for January ran at 10.6% y/y, jumping to 13.2% y/y in February.
• These notably rapid rates of cost increases for food at the production level are having a substantial effect on CPI food price inflation, which is the main component of the headline CPI rate.
• March’s core inflation rate (which excludes food and non-alcoholic beverage prices as well as fuel and energy costs) remained at a high of 5.2% y/y, as core inflation remained sticky.
• Overall, CPI inflation is likely to come out above, as opposed to below, 5.5% y/y for 2023 (near 6.0% y/y) as domestic price pressure has seen a strong upward momentum, although food price pressure should see some stabilisation from Q2.23.





Source: Investec

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