Headline inflation was 5.9% y/y in April, flat from the print in March. This outcome was in line with the consensus expectation, but slightly below our expectation of 6.0%. Headline inflation accelerated by 0.6% m/m – core contributed 0.3ppt, while fuel and food added just over 0.1ppt each.
Core inflation recorded 3.9% y/y and 0.4% m/m. Since March, we have had considerable increases in vehicle inflation (1.3% m/m, 6.3% y/y), insurance (1.1% m/m, 4.0% y/y), as well as alcoholic beverages and tobacco (0.8% m/m, 6.3% y/y). Each of these items added around 0.1ppt to the monthly pressure in core inflation.
Fuel inflation increased by 2.2% m/m and 29.2% relative to the same month last year.
Food and non-alcoholic beverages (NAB) inflation increased by 0.7% m/m and 6.0% y/y. Meat inflation provided the most upward pressure (0.3ppt), while dairy and eggs, oils and fats, as well as NAB, each contributed around 0.1ppt to the monthly pressure.
Outlook
Headline inflation should continue to accelerate in the coming months. With just the update of today’s data, headline inflation looks set to touch the upper inflation target band in May, at 6.0%. Furthermore, inflation should continue rising in June, as new housing inflation data comes through, and food and petrol prices continue to climb. As it stands, the blow-out in the rand has driven the month-to-date under-recovery in the petrol price to over R2 per litre, and this would add to the lapse of the R1.50 general fuel levy relief. Oil prices could also gain support from an improved demand outlook, as China eases lockdown restrictions. Government could provide further support to cushion consumers from escalating petrol prices, but for now, headline inflation is likely to average 6.4% in the second quarter.
Rising food and fuel prices should have a spill-over effect to wage and social demands as households seek to be compensated for the rise in cost of living. In line with this, higher inflation expectations are likely to support a lift in structural inflation and this would warrant further tightening by the MPC. A more aggressive US Federal Reserve Bank will also add upward pressure to local interest rates. The consensus expectation is for the SARB to hike rates by 50bps at the upcoming meeting.
The May inflation print is scheduled for release on 22 June. There are no major surveys conducted in May.
