According to Statistics South Africa (2019) the annual year-on-year inflation rate declined from 4,5% in June 2019 to 4,0 % in July 2019, while on a month-on-month basis the inflation increased by 0,4%.

“The inflation rate is therefore within the inflation target range of the South African Reserve Bank (SARB) of 3 to 6%,” says Prof Danie Meyer, director of the TRADE (Trade and Development) research entity at the North-West University (NWU).

Prof Meyer and Roan Neethling, a TRADE research assistant, says that inflation in South Africa is driven by cost increases of fuel, electricity and municipal utilities such as water and electricity, known as cost push inflation.

“The Consumer Price Index (CPI) is a measurement to investigate the median of prices which are derived from a basket of services and goods which the consumer utilises on a daily basis such as medical treatment, clothes, food and transport,” says Roan.

The consumer price index is therefore being utilised to evaluate any price changes from one period to another, and therefore it is an excellent tool to estimate the cost of living.

They say the report from Statistics South Africa (2019) indicated the following:

• The most dominant part of the inflation basket contributing to the increase in annual inflation were non-alcoholic drinks and food which increased by 3,4 %, and caused 0,6% contribution to the year-on-year CPI.
• Utilities such as water and electricity as well as housing development increased by nearly 5,1% on a year-on-year basis.
• Transport cost diminished by -0,2% of the year-on-year CPI basis.
• Regional and geographical inflation rates in the Western Cape and North West Province was 4,8% and 3,6% respectively on a year-on-year basis.

“Given that inflation declined on a year-on-year basis from 4,5% to 4,0%, the most difficult assignment is for the South African Reserve Bank (SARB) to implement interest rate changes based on the given inflation rates,” says Prof Meyer.

“The Monetary Policy Committee (MPC) of the South African Reserve Bank (SARB) next meeting is from 17 to 19 September 2019 and it is expected that interest rates will be cut again after the decrease in interest rates by 25 basis points on 18 July. The inflation outcomes of August 2019 and GDP results for quarter 2, which is expected on 3 September 2019 could affect this decision. GDP growth in quarter 2 is expected to be positive but below 1,0%.”

Prof Danie Meyer