RMB Chief Economist Ettienne le Roux has shared the below comments re CPI.
CPI inflation rose from 2.9% year-on-year in February to 3.2% in March, an outcome RMB had expected.
Over the month, the index climbed by 0.7 percentage points: nearly half of this increase was due to higher transport costs which, in turn, was driven by a 4.1% surge in fuel prices. The remainder of the monthly rise in CPI can be explained by small price increases of a range of other goods and services including food, alcohol and education.
Core inflation (CPI excluding food, non-alcoholic beverages, fuel and electricity) eased to 2.5% year-on-year in March – a testament of weak underlying domestic demand conditions.
A low base in the second quarter of 2020 coupled with sharply higher energy costs could well see CPI inflation sustaining its upward trend, possibly even reaching 5% in coming months.
There is little reason for alarm however.
Beyond a likely short-lived acceleration, the medium term outlook for CPI inflation remains encouraging.
Given recessionary conditions even before Covid-19 struck, last year’s big contraction in GDP means there’s notable slack to work off before South Africa’s output gap will close.
Also, in response to 2020’s deep recession, efficiency benefits resulting from corporate restructurings, new cost saving initiatives and increased spending on technology ought to be significant – all this at a time when the corporate landscape is becoming ever more competitive.
Underlying inflationary pressures should therefore remain subdued.
RMB sees CPI inflation averaging 4.1% in 2021 and 4.3% in 2022.