South Africa's transport sector emerged as the biggest driver of consumer inflation in June, as sharply higher fuel prices pushed annual inflation to a two-year high of 5.0%, according to Statistics South Africa. Economists said the stronger-than-expected reading increased the likelihood that interest rates could remain higher for longer.
Annual consumer inflation accelerated from 4.5% in May to 5.0% in June, exceeding market expectations and moving above the upper end of the South African Reserve Bank's (SARB) inflation target range.
Transport was the largest contributor to both the annual and monthly increase in the consumer price index (CPI). Annual transport inflation accelerated to 12.7% in June from 9.4% in May, driven primarily by a sharp rise in fuel prices.
Fuel prices increased by 34.3% year on year, with diesel prices surging 50.8% and petrol prices rising 31.7%.
Higher fuel costs also filtered through to passenger transport. Annual passenger transport inflation accelerated to 12.5% from 4.0% in May, driven by higher taxi, e-hailing and bus fares.
Despite the sharp increase in transport costs, food inflation slowed to 1.4% year on year – its lowest level since late 2010 – largely because of South Africa's record agricultural harvest.
A record 21.5 million-tonne summer crop boosted supplies of cereals, fruit, vegetables and meat, helping to offset higher logistics costs, FNB Commercial senior agricultural economist Paul Makube said.
"On the back of a 5% year-on-year increase in the summer crop harvest to a record 21.5 million tonnes, cereal products remained in a deflationary mode since the beginning of the year."
Transport inflation nevertheless remained a significant risk for the food value chain, said Makube.
"About 80% of food distribution is done by road." He added that rising fuel prices could place additional pressure on agricultural logistics and food distribution if geopolitical tensions persisted.
The latest inflation figures showed that the recent energy price shock was beginning to spread more broadly through the economy, according to David Omojomolo, Africa economist at Capital Economics.
"This release showed clear signs that the energy shock is broadening in its impact."
The higher-than-expected inflation reading, together with renewed increases in global oil prices, increased the risk that the SARB would tighten monetary policy further, said Omojomolo. Higher borrowing costs would add to the financial pressures facing transport operators investing in fleets, warehousing and logistics infrastructure.
Retail sales continued to grow in May despite higher fuel prices, suggesting households had adapted by reducing fuel consumption rather than sharply cutting overall spending, said FNB economist Siphamandla Mkhwanazi.
"The release suggests that consumers remained resilient at the start of the second quarter despite sharp fuel price increases linked to tensions in the Middle East."
