SA consumer basket inflation accelerates

Consumer inflation in South Africa fell for the fifth straight month in a row in January as a deceleration in transport costs offset rising food prices. The headline CPI came in at 6.9 percent, slightly higher than expected. Food inflation continues to accelerate, with prices soaring for basic items like onions, maize meal, and coffee. Despite a global moderation in food prices, South Africa's energy shortages and currency challenges are keeping food inflation sticky. The slow deceleration in food inflation is expected to persist throughout the year. Factors such as load shedding and a weakened rand are contributing to the elevated costs of food. The high vegetable prices, especially for items like onions, are further adding pressure on consumers. The January figures still reflect a strong seasonal impact, indicating that elevated food inflation is likely to continue for the foreseeable future. As a result, the South African Reserve Bank may face difficulties in managing interest rates amid persistently high inflation. While global economic activities are expected to be weaker this year, driving lower demand and inflation, factors like higher-than-pre-pandemic inflation levels and elevated inflation expectations may prompt the central bank to maintain interest rates at higher levels for an extended period. The interview also suggests that wage negotiations and household budgeting will be impacted by the ongoing high food inflation rates. Despite earlier expectations of a potential rate cut towards the end of the year, the current scenario points towards a peak interest rate of 7.5 percent, with no imminent cuts in sight. Overall, the South African consumer is likely to continue facing challenges with elevated food prices and the lingering effects of energy shortages and currency fluctuations.