According to the latest information announced by Statistics SA earlier this week, consumer price inflation for April was slightly higher than March 2018. The general expectation in the market was that it would be higher mainly due to the higher VAT rate that came into effect since April 2018. Fuel prices have also increased sharply, which has an impact on the local inflation rate. The current inflation rate of 4.5% year on year for April is still well in line with the target of the South African Reserve Bank, which is set at between 3% and 6%. However, it is expected that inflation may remain relatively stable close to current levels, in the next few months, and that there is a likelihood that inflation may show a slightly higher trend, rather than downward trend. However, there are a number of uncertain factors that will still have a significant impact on the inflation rate over the next few months. Currently, the volatility of the exchange rate as well as the rising trend of the Brent crude oil price are surely the two biggest factors that should play a significant role in the movement of the inflation rate over the said period.
Food inflation has slowed sharply in recent months, and overall food inflation was in April 2018 below 5% year on year, for the 5th consecutive month,. Grain and grain-based products play a key role in the overall food basket that is taken into account in calculating the monthly CPI. It is clear from the latest monthly inflation figures that prices of grain and cereal products such as maize flour, as well as wheat products (white and brown bread 700g) are declining. During April 2018 the price of a 700g white bread was about 3.26% lower compared to the same month last year while the price of brown bread was 5.98% lower than in April 2017. The price of maize flour was also significantly lower compared to a year ago and on average between 18% and 30% lower in April, compared to 2017, depending on the type of maize flour and its packaging. Graphs 1 and 2 below indicate the year-on-year change in the price of maize flour and bread respectively. It is clear from Graph 1 that the maize meal price of both super and special maize flour has begun to slow down since January 2017 and since August 2017 prices began to decline year on year. Figure 2 indicate the year-on-year change in prices of both white and brown bread over the past two years. It is clear that the year on year price of both white and brown bread began to decline for the first time in two years since August 2017.
Graph 1: Percentage year on year changes in the price of super and special maize meal prices Source: Stats SA
Graph 2: Percentage change of year on year prices of 700g white and brown bread Source: Stats SA