Inflation in South Africa zoomed to worrying levels in November, spurred by soaring fuel prices and raising the prospect that the central bank will continue to hike rates further in 2022. This is deeply concerning as rising prices will take their hardest toll on the swelling ranks of the poor and unemployed in South Africa’s slow-growth economy. The trend will also push wage demands higher at a time when the profit margins of many companies are low. 

The real shocker in the data, unveiled on Wednesday by Statistics South Africa (Stats SA), was the producer price index (PPI). It hit 9.6% in November from 8.1% in October. This was its highest reading since the introduction of headline PPI as inflation for final manufactured goods a decade ago. Before that, PPI was based on domestic output and under that measurement it reached 9.8% at the end of 2011. 

Fuel prices were the accelerant as global crude prices have put in a spectacular 2021 rebound after their pandemic-triggered collapse in 2020. Petrol producer inflation was more than 39% in the 12 months to November, while on the diesel front it was almost 42%. 

“The profit margins are low so there will be price increases coming through to the consumer inflation side from this,” said Mike Schussler of economists.co.za.

Consumer price inflation (CPI) for its part picked up pace to 5.5% in November from 5.0% in October, its highest reading since March 2017. 

Transport prices were key, increasing 15% year-on-year as fuel prices surged 34.5% year-on-year. 

Food consumer inflation at least braked further, to 6.0% in November from 6.7% in October, a trend that will remove some of the inflationary bite on poorer households. 

But at 5.5% CPI is deep into the upper range of the South African Reserve Bank’s 3% to 6% inflation target range. With PPI just shy of double digits, expect the bank to maintain the tightening cycle it started in November when it hiked the repo rate by 25 basis points. November’s inflation numbers support that move. DM/BM