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Lower food prices have helped offset the impact of a higher value-added tax rate and recent fuel price hikes on the overall consumer price index, according to analysts.
This follows the release of inflation data for May by Statistics South Africa on Wednesday.
StatsSA reported that inflation eased to 4.4% in May compared to 4.5% in April. Market consensus was for inflation to be somewhat higher at around 4.6%, given the implementation of a one percentage point increase in the VAT hike, higher fuel costs and a weaker rand.
Reacting to the figures, Investec economist Lara Hodes said the impact of the VAT rate hike and fuel increases was countered by the low level of food price inflation, which came in at 3% in May compared to 3.7% for April.
According to PwC, the country's food inflation is now at its lowest level since 2013.
“According to StatsSA, bread & cereals, fruit, oils & fats, as well as sugar, sweets & desserts are now all cheaper compared to a year ago.
“Fruit prices declined by 2.3% month-on-month during May, while breads & cereals were 0.8% month-on-month cheaper,” said PwC.
Listeriosis contributes to falling pork prices
Meat inflation also declined significantly over the past nine months, from a peak of 15.6% in September 2017 to 7.8% in May. This was mainly driven by a decline in pork prices since the beginning of 2018, which hit a four-year low in April.
“This was strongly associated with a slump in consumer demand for ready-to-eat processed meat products following an outbreak of listeriosis linked to this product category. The drop in demand resulted in an oversupply on the market,” said PwC.
Other contributors to lower meat prices included lower feed costs and a stronger exchange rate during certain periods, which made imports cheaper.
Momentum Investments Economist Sanisha Packirisamy said fuel hikes still pose a risk to inflation, while noting the effect of lower food prices.
She added that the effect of a clawback tariff granted to Eskom by the National Energy Regulator of South Africa earlier in June still needs to be seen.
Eskom can recover R32.6bn for revenue shortfalls through tariffs, but how this will be phased in and affect consumers will only be announced in September.
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