While news from the Department of Energy and ESKOM still paint a doom and gloom scenario, the National Fiscal Indices for Inflation came up with a surprise: In December, CPI inflation decreased rapidly to 5.3% year-on-year (y/y) from 5.8% y/y in November, matching the previous November 2013 low.
The reading was softer than market expectations for 5.5% y/y, and marks the fourth successive month that inflation is within the SARB’s 3.0-6.0% target band. On a month-to-month basis, prices fell 0.2%, after remaining flat in October. A moderation in fuel inflation on the back of the continued slide in oil prices exerted downside pressure on headline Consumer Price Index (CPI), while food price pressures also continued to subside. The December print brings the average annual inflation for the year to 6.1%, to match the SARB expected average.
Contrary to expectations, core inflation also decreased in December, to 5.7% y/y from 5.8% y/y in November, bringing the 2014 average to 5.6%, also in-line with the SARB’s estimate for the year. It is instructive to note that barring the impact of sharply lower oil prices, inflationary pressures in the economy would otherwise remain elevated, as reflected in still robust price growth in excess of headline CPI, for sub-categories such as hotels & restaurants, education, and alcohol & tobacco. Nonetheless, substantially lower transport inflation and abating food price pressures are expected to negate the aforementioned in the short to medium term, suggesting that risks to CPI remain skewed to the downside into the first quarter of 2015.