It seems that South Africa is snapping its bond with the unfavuyrable trajectory it was passing through. The prices of food and other essentials increased in the recent months including in November. The reprieve coming ahead of Christmas days after a log spell of macroeconomic instability is cheered by its citizens and the government alike. The annual consumer price inflation decreased to 3.6% in November from 3.7% in October, according to the official figures. Last time, such a low inflation was experienced in December 2010, when the prices stood at 3.5%.
Significantly, the monthly inflation also fell in a row from 4.3% in August to 4.1% in September and then 3.7% in October. Also, prices of food and non-alcoholic beverages increased at an even slower pace, contributing only 60 basis (0.6)points to the total CPI of 3.6%, according to Statistics SA.
Not all goods have followed this trend. In some sectors, prices increased. For instance, in the case of miscellaneous goods and services, prices increased by 5.7% year-on-year basis. Housing and utilities sector also registered increases in price levels by 4.8% year-on-year basis. The rise in housing and utilities contributed most to the CPI increase at 1.2 percentage points.
A few economists are betting on economy performing moderately well in the months ahead with the retail inflation getting stabilized. That would leave more purchasing power with the people to demand more goods and services. But the worrying factor is the poor performance of the public utilities like Eskom, South African Airlines and many other public utilities, where the government will have to go very slow in reforming on account of the job loss and the political ramifications such hard steps would cast.
There is also another explanation by some sections of economists, as to why the consumer inflation is low at 3%. It is because that the producers fear that if they mark up the prices to reflect the cost of production plus profit, there will be consumer resistance. So the manufacturers absorb some of the price hikes in the raw materials and other inputs that go into production in anticipation of a better time to realize it. If there is a slight improvement in the business confidence, the prices, they say, are bound to increase to compensate for the loses they incurred. Therefore, they argue that low inflation is starting to affect the economy.
