Low CPI reflects sluggish economy – economist

Grain and cereal prices were 8% higher year-on-year in December, according to the latest consumer price inflation figures released by Statistics South Africa. Photo: Sabrina Dean

Consumer price inflation increased slightly from November to December 2019, but still remained at its lowest level in nearly a decade, and was expected to remain low throughout 2020.

Statistics South Africa (Stats SA) said in its latest Consumer Price Index (CPI), released on 21 January, that in December the index had increased 0,3% from the previous month.

“Annual consumer price inflation was 4% in December 2019, up from 3,6% in November 2019,” Stats SA said in its statement.

The increase had largely been driven by the food and non-alcoholic beverages sector (up 3,9% year-on-year); transport (3,3%); housing and utilities (4,6%); and miscellaneous goods and services (5,4%).

Farmer’s Weekly reported late last year that the CPI had reached its lowest level in the past eight years in October 2019.

According to Stats SA’s historical tables, the CPI in October last year was measured at 3,7%, the lowest since the 3,4% recorded for October 2010. The 4% recorded for December 2019 was down year-on-year from the 4,5% recorded in December 2018, and was also the lowest inflation figure recorded since December 2010, when it was 3,5%.

Dawie Roodt, chief economist at the Efficient Group, told Farmer’s Weekly that he was not expecting inflation to increase significantly in the year ahead. He added that the low inflation was a symptom of the struggling economy, as sluggish consumer spending power kept a check on price increases.

“The good news is that inflation levels are relatively low by South African standards, although still high when compared to places like Europe,” he said.

Roodt praised the approach by the South African Reserve Bank (SARB) Governor Lesetja Kganyago, which he said had made it possible for inflation levels to be brought down mechanically and a slight reduction in interest rates to be introduced.

“Thirdly, the SARB has also succeeded in keeping inflation expectations lower,” he said.

On the down side, Roodt said corruption, state capture and other destructive political forces would continue to erode the country’s economic growth outlook throughout 2020.

He highlighted the problems at Eskom and other state-owned entities, and the potential downgrading of South Africa’s sovereign credit rating by Moody’s Investors Service in March, as other issues contributing negatively to the 2020 outlook.

Looking at food product prices in December, the CPI revealed that bread and grain prices recorded some of the highest year-on-year increases, up 8% from December 2018. This was surpassed only by the price of fish, which was 8,2% higher. Meat prices had increased 2% from the same time last year, also recording a further 0,5% increase from November.

Stats SA is scheduled to release its Producer Price Index figures for December 2019 on 30 January.