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Financial Planning
February 19, 2020

Consumer inflation accelerates further in January 2020

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<p><strong>By: Matlhodi Matsei, FNB Economist</strong></p>

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<h2><strong>Consumer inflation starts 2020 on a higher note on account of further rises in domestic fuel prices</strong></h2>

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<p><strong>Spokesperson: Matlhodi Matsei, FNB Economist</strong></p>

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<ul><li>According to Stats SA, consumer prices jumped to 4.5% y/y in January 2020, from a modest 4% in December 2019. The outcome was marginally lower than our and the market’s expectation of a 4.6% y/y increase. On a monthly basis, inflation increased by 0.3%.</li><li>The acceleration in headline CPI was largely a reflection of domestic fuel price annual base effects. Although the monthly movements in domestic fuel prices were somewhat measured in January, i.e. the price of 95 octane unleaded petrol declined by 14 cents per litre (c/l) and the diesel price increased by 9 c/l, the year-on-year increases were significant. The price of 95 octane unleaded petrol rose by more than 15% y/y, while that of diesel increased by over 11%.</li><li>The impact of higher domestic fuel prices was evident in the CPI for petrol, which surged to 13.7% y/y, from the 2.4% increase recorded in December. This contributed to the rise in transport CPI to 6.4% y/y from 3.3% previously and led to a greater contribution to headline CPI.</li><li>Other major contributors to headline CPI were housing and utilities (+1.2 percentage points [ppt]), as well as miscellaneous goods and services (+0.9ppt). It is worth noting that January was a survey month for funeral policies, as well as insurance premiums for buildings and household contents, among other CPI basket items. During the survey month, CPI for insurance registered 7.1% y/y from 6.8% previously. In addition to this, CPI for financial services jumped to 6.2% y/y from 3.6% in December. These jumps were supportive of the 0.4ppt uptick in the inflation reading for miscellaneous goods and services CPI, which recorded 5.8% y/y (5.4% previously).</li><li>On the other hand, inflation for food and non-alcoholic beverages started the year on a softer note (down to 3.7% y/y from 3.9% previously). Food inflation edged slightly lower to 3.7% y/y from 3.8% previously, aided by softer grains prices amid sufficient rains and planting schedules that remain on track. Meat CPI, on the other hand, perked up slightly to reflect the supply imbalance that was caused by the ban on live animal auctions as a result of foot-and-mouth disease.</li><li>Core inflation moderated further to 3.7% y/y, from 3.8% previously, against the backdrop of persistently weak consumer demand as well as low rental inflation. Services inflation helped anchor core CPI as it continued to soften amid deteriorating consumer finances.</li><li>Looking ahead, we expect headline CPI to average 4.1% in 2020 – unchanged from 2019. The inability of businesses to pass on material price increases to consumers due to constrained consumer income growth will likely continue. Furthermore, international oil prices are poised to remain contained, on average, amid excess supplies and a mild global growth recovery.</li></ul>

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<p><strong>Listen to a voice note from Matlhodi Matsei, FNB Economist below:</strong></p>

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