South African consumer inflation had been moderating since October, a positive trend amid the wider economic gloom. And food prices were the main driver of the February reversal, signalling a worsening in the cost-of-living crisis that is extracting its harshest toll on poor and working-class households.

At 7.0% in the year to February, the CPI quickened from 6.9% in January and exceeded market expectations of 6.8%. 

“Prices for food and non-alcoholic beverages increased by 13.6% over the past 12 months, up from 13.4% recorded in January. The reading in February is the highest since April 2009 when it was also 13.6%. Annual inflation for bread & cereals was 20.5%, slightly lower than January’s 21.8%,” Stats SA said.

Stripping out non-alcoholic beverages, food inflation in the year to February picked up to 14.0% from 13.8% in January. And the price of maize meal, a key staple, is quickly becoming unaffordable for many households that rely on it as a vital source of calories.  

“Its price index increased by 2.2% between January and February, taking the annual rate to 34.7%,” Stats SA said. And meat inflation remains on the boil, rising to 11.4% in the year to February, from 11.2% in January. 

So protein is also pricey, and the escalating price of chicken and other meat products is in large part a result of the disruptions to production and slaughter chains and cold storage systems triggered by the power crisis. 

“High input costs for agriculture still place a drag on the sector, including the heady cost of inputs such as fertilisers, etc, while self-generation electricity costs to meet the impact of load shedding are an additional factor, as is loss and wastage on severe load shedding at the ports for agricultural products requiring refrigeration or freezing. Irrigation also relies on electricity,” Investec Chief Economist Annabel Bishop said in a note on the data.

South African food inflation is also defying international trends, which further highlights the role of power shortages on this front. The Food Price Index compiled by the Food and Agriculture Organisation of the United Nations declined in February for the 11th consecutive month. 

This is all deeply concerning. Quickening inflation is unfolding in an economy that may be in recession after contracting 1.3% in the fourth quarter of last year because of the surge in rolling blackouts, and is burdened with an unemployment rate of 32.7%. 

This raises the spectre of stagflation – low growth or a contracting economy beset by high unemployment and inflation. Climbing food prices are also a potential spark for social unrest, which is on the rise because of the power cuts. 

Read more in Daily Maverick: Service delivery protests surged in January as power cuts ramped up, research company finds

Meanwhile, stubbornly high inflation will not be lost on the South African Reserve Bank, whose Monetary Policy Committee (MPC) meets next week for its second interest rate decision of 2023. At 7.0%, the CPI remains well above its 3% to 6% target range, and the South African Reserve Bank has long displayed a relentless focus on inflation derived from its mandate. 

The MPC has now made eight consecutive rate hikes, adding 375 basis points to its key repo rate since November 2021, taking the prime rate for consumers to 10.75%. Current expectations are that it will probably hike by 25 basis points next week, and then take its finger off the trigger for a while. 

But the MPC will be concerned by how persistent inflation has remained above its target range and the rising pace of food price increases. It will also be wary of the weakening rand and what that trend will mean for import inflation. 

When the MPC last met in late January, the rand was fetching around 17.13/dollar. On Wednesday, it was above 18.50/dollar, within strolling distance of its low of just over 19/dollar reached almost three years ago during the initial economic meltdown in the face of the Covid pandemic.

And as we went to press, the US Federal Reserve had not yet announced its latest rates decision, which was due late Wednesday. It was expected to hike by 25 basis points, and that is also forcing the hand of the MPC. 

This all means that a bigger rate hike than 25 basis points may be on the cards next week in Pretoria, and that it may not be the peak of the current tightening cycle – which is also not great news for an economy that is literally dimming as the lights flicker and fade. DM/BM