Momentum Investments have released their research note titled, Inflation profile little changed on reweighting exercise, prepared by the Momentum Macro Research Team.
Please see below, a summary of highlights from the team, as well as a downloadable PDF of the research paper.
SA headline inflation dropped back to 5.7% year-on-year (y/y) in January 2022 from 5.9% y/y in December 2021 and was in line with the Reuters consensus.
The monthly 0.2% increase in headline inflation was largely driven by increases in food prices (oils and fat, vegetables and meat) and financial services (including banking charges) costs.
Capital Economics suggests that attacks on fuel storage facilities in the United Arab Emirates, related conflict in Yemen and rising fears of a Russian invasion of Ukraine have added around US$30/bbl to international oil prices by means of a risk premium related to geopolitical concerns. While the current spike in international oil prices is viewed as a temporary shock, it remains one of the key upside risks to local inflation, in our view.
Underlying measures of inflation, including the trimmed mean and core inflation, remain considerably lower than the headline measure of inflation, indicating weaker underlying inflation pressures in the economy and highlighting the effect of commodity prices on the headline reading.
International standards require a reweighting of the consumer price index (CPI) every five years to reflect changing tastes, new products and services and to account for the substitution bias, under which households turn to cheaper substitutes.
Partly in the absence of a full income and expenditure survey (due to expenditure constraints faced by Statistics South Africa (Stats SA)), the changes have been quite small this time around and make a marginal difference to our expected inflation profile. We expect headline inflation to average 4.9% in 2022, 4.3% in 2023 and 4.3% in 2024. On core inflation, we project an average of 3.6% for 2022, 3.9% in 2023 and 4.1% in 2024.
The January 2022 inflation figure does not derail our view on monetary policy moves for the remainder of the year. We continue to forecast a further three hikes of 25 basis points each for 2022, with the repo rate reaching a terminal value of 5.75% in early 2024.
Download the full report, click below….