Inflation dips slightly in March, but data only reflects prices before lockdown

South Africa’s headline inflation rate dipped in March, after sustained increases since November 2019 saw the annual consumer price index reach a 15-month high in February.

According to figures released by Statistics SA on Wednesday, the annual consumer price index decreased to 4.1{e93887a69cdd95d753f466db084bbc3aa0067124675315461d28d68a72842cc2} year-on-year in March 2020, from 4.6{e93887a69cdd95d753f466db084bbc3aa0067124675315461d28d68a72842cc2} in February 2020. Month-on-month inflation, meanwhile, increased by 0.3{e93887a69cdd95d753f466db084bbc3aa0067124675315461d28d68a72842cc2}.

CPI is calculated based on weighted average price of a basket of goods and services. But Stats SA collected the CPI data only for the first three weeks in March as the nationwide lockdown instituted in late March by President Cryil Ramaphosa brought economic activity to a standstill in many sectors before the end of the month, dramatically restricting what consumers ca buy. 

“Data collection for March was completed before the lockdown went into effect on 27 March,” said Stats SA. 

The statististical agency said the inflation rate for food and non-alcoholic beverages was slightly higher than the overall inflation, at 4.2{e93887a69cdd95d753f466db084bbc3aa0067124675315461d28d68a72842cc2} year-on-year.

Categories that saw the biggest price increases in March were housing and utilities, that increased by 4.8{e93887a69cdd95d753f466db084bbc3aa0067124675315461d28d68a72842cc2} year-on-year, and miscellaneous goods and services, that jumped 6.4{e93887a69cdd95d753f466db084bbc3aa0067124675315461d28d68a72842cc2} year-on-year.

Although a decline was recorded in March, the inflation rate is still well ahead of the SA Reserve Bank’s medium-term forecasts for consumer inflation, which were recently revised to an average of 3.6{e93887a69cdd95d753f466db084bbc3aa0067124675315461d28d68a72842cc2} for 2020 given that the bank now expects the country’s economic growth to contract by 6.1{e93887a69cdd95d753f466db084bbc3aa0067124675315461d28d68a72842cc2} for the year.

Researchers, like The Economist Intelligence Unit, have forecast that prices will fall in the coming months as the worldwide disruption in supply chains caused by Covid-19 and weak domestic demand are expected to push down prices in many categories of goods and services, but not food.

The crash in the global oil price is also expected to change SA’s inflation outlook the SA Reserve Bank said in its April Monetary Policy Committee statement, although with the proviso that the impact of the fall in the rand against the US dollar does not reach the point that that it drives inflation upwards.

Absa has forecast CPI at around 2.6{e93887a69cdd95d753f466db084bbc3aa0067124675315461d28d68a72842cc2} in the second quarter of 2020 and core CPI inflation at 3.4{e93887a69cdd95d753f466db084bbc3aa0067124675315461d28d68a72842cc2}. The bank, which released its quarterly perspective report for the three months to June, pointed out that recent increase in SA’s inflation rate were narrowly based on the effects of fuel prices. But it did highlight that the multiple shocks to SA’s inflation dynamics, such as the oil price crash and the constant depreciation of the rand complicated the outlook.

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