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Consumer inflation up 4.9% y/y in August
After moderating to 4.6% y/y in July 2021 (from 4.9% in June), consumer price inflation reverted to 4.9% y/y in August – in line with our and the consensus expectation. Headline inflation was up by 0.4% m/m, explaining this increase was a 0.2ppt contribution by core inflation and 0.2ppt added by fuel.
Core inflation was up 3.1% y/y, from 3.0% last month, and 0.3% m/m. Major contributions were from core transport (transport bar fuel, increased 0.7% m/m and 5.2% y/y, contributing 0.09ppt to the monthly pressure) and alcoholic beverages and tobacco (0.6% and 5.0%, adding 0.05ppt). The remainder of the change is from softer moves in other components. Services inflation posted 2.8% while core goods measured 3.9%.
After slowing to 15.2% y/y in the month prior, fuel inflation accelerated to 19.6% y/y and 4.9% m/m. Electricity prices increased by 0.3% m/m to post 13.9% annual inflation. As a result, administered price inflation was 10.3% y/y and had m/m pressure of 1.5%.
Food and non-alcoholic beverages (NAB) inflation increased to 6.9% y/y, from 6.7% y/y previously, and was up 0.2% m/m. The subcategories driving this pressure were meat (up 0.8% m/m and 10.7% y/y, contributing 0.3ppt to the monthly pressure in food), vegetables (1.4% and 5.6%, adding 0.1ppt), and other foods (0.9% and 5.0%, adding another 0.06ppt). Other items, such as bread and cereals, posted negative monthly pressure and limited the pressure to total food and NAB.
The gap between core and headline inflation reflects upward inflationary pressure from volatile goods, particularly fuel. Excluding fuel, the headline would have posted 4.2%, from 4.1% previously.
Outlook
Headline inflation has ticked up, but May’s print of 5.2% y/y remains the peak, as we expect annual headline inflation to remain around current levels in the near term. While fuel inflation should accelerate further, food and NAB inflation should slow and core inflation remain constrained. With just an update of today’s data, headline inflation should print 5.0% in September and average 4.5% in 2021. Petrol prices increased by 4c per litre in September and there is an overrecovery of 18c with 16 days of data for October, suggesting moderate relief, but annual inflation will remain elevated.
Core inflation should remain closer to 3%, bar any surprises from housing inflation’s print in September. Food inflation should decelerate from current levels, ending the year closer to 5%.
Supply disruptions remain a major risk to our near-term inflation forecast, and we continue to monitor import unit values for consumer-related goods. Other risks are from rand and oil price volatility, the latter driven by supply-side concerns.
The MPC announces its interest rate decision tomorrow. The inflation starting point should not be too much of a concern, except for second-round effects from supply-side inflation, but weak demand should constrain passthrough.
Survey outcomes to look out for in September are the housing survey (weighing 16.84% in total CPI), domestic worker wages (2.45%), taxi, bus and train fares (1.67%), as well as vehicle insurance (0.58%).
Note: Stats SA will be applying new CPI weights with the January 2022 print. The new base period will be December 2021.
