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In today's blog we will take a look at South Africa's inflation rate which is heading in the right direction (if you Reserve Bank governor) or the Monetary Policy Committee (MPC) or just a regular South African citizen. As higher inflation rates, leads to higher interest rates which in turn leads to less disposable income for consumers.
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Inflation Heat Map
The interactive map below shows South Africa's monthly inflation rate per province. And readers will note that it does look like the poorer provinces are experiencing higher inflation rates than the richer provinces. This will be discussed in more detail below the Inflation Heat Map.
From the heat map it is clear that over the period in consideration the average rate of price increases/infation in the various provinces tend to differ rather substantially from one another over time. Readers might be wondering as to why the inflation rate experienced by the various provinces are different at all. Well each province has a seperate "basket" of goods and services that Statistics South Africa prices in order to measure the overall levels of inflation not only for all SA's provinces but for the country as a whole too. The basket of goods and services and the weight assigned to each item in each province's basket is based on the expenditure patterns of the citizens in the various provinces (and spending patterns are a function of various factors such as income, age, race, weather etc).
Take the example of vehicles. A lot more vehicles are sold in Gauteng than any of the other provinces. Thus the overall amount of money and the percentage of money spent by Gauteng citizens is far higher than that of say citizens in say Limpopo for example. And the same holds true for all the 400 odd goods and services being priced. As the demographics of the various provinces differ so will their inflation baskets and inflation rates.
Take the example of vehicles. A lot more vehicles are sold in Gauteng than any of the other provinces. Thus the overall amount of money and the percentage of money spent by Gauteng citizens is far higher than that of say citizens in say Limpopo for example. And the same holds true for all the 400 odd goods and services being priced. As the demographics of the various provinces differ so will their inflation baskets and inflation rates.
We know now that inflation rates differ per province, but the question now is just how much does it vary within a specific province and how the variation in a particular province compares to that of the other provinces? I.e which provinces have the most and least volatile inflation rates? The bar chart below shows the gap between the highest rate of inflation and lowest rate of inflation per province over the time period January 2015 to May 2017.
From the bar chart it is clear that Limpopo has the highest variation in their inflation rate over the time period. With the highest and lowest level of inflation varying by almost 5%, while the Northern Cape has the least amount of variation in its inflation rate over the said time period. While Gauteng ( which carries the highest weight of all the provinces in South Africa's inflation basket and acts as strong guide to SA's overall inflation rate) experienced variation of 3.2% from the lowest to highest level of inflation over the time period).
The bar chart does show that the variation between the high and low rates of inflation recorded per province is pretty large and that SA's inflation rate is volatile. The line chart below shows the overall inflation rate for South Africa (from January 2015 to May 2017) and its clear that it's currently in a declining phase with and consumers surely hoping for more, especially given the latest petrol price announcement made by the Department of Energy. See more here
The bar chart does show that the variation between the high and low rates of inflation recorded per province is pretty large and that SA's inflation rate is volatile. The line chart below shows the overall inflation rate for South Africa (from January 2015 to May 2017) and its clear that it's currently in a declining phase with and consumers surely hoping for more, especially given the latest petrol price announcement made by the Department of Energy. See more here
The line chart above shows South Africa's official inflation rate from January 2015 to May 2017 as well as the inflation target as set out by the South African Reserve Bank (SARB). For more details on why SARB has an inflation targeting policy, read this article published on Fin24 as written by the governor of SARB. Read article here
While we have criticised SARB in the past regarding their interest rate setting (based on poor inflation forecasts, we are supporters of an inflation targeting policy as currently being followed by SARB, we just feel that if their interest rates are set on forecasts, they need to improve their forecasting as the current state of forecasting is hardly good enough to base fiscal policy on.
With fuel prices showing a strong decline, it should filter through to the inflation rate, which should give consumers some breathing room as this means there is less chance of further interest rate increases (sadly at the time of writing the Rand/Dollar exchange rate is taking a pounding as the ANC mauls over the ridiculous idea of Nationalizing the SARB), and this will concern SARB. As a weakening exchange rate poses the risk of increased import prices, which will lead to higher domestic prices and therefore higher rates of inflation. Hopefully this idea is a flash in the pan instead of something that is seriously considered by the ANC and that the ZAR can make up some of the recently lost ground. As inflation within the inflation target band for prolonged periods will make it very hard for SARB not to lower interest rates (to assist the ailing economy).
While we have criticised SARB in the past regarding their interest rate setting (based on poor inflation forecasts, we are supporters of an inflation targeting policy as currently being followed by SARB, we just feel that if their interest rates are set on forecasts, they need to improve their forecasting as the current state of forecasting is hardly good enough to base fiscal policy on.
With fuel prices showing a strong decline, it should filter through to the inflation rate, which should give consumers some breathing room as this means there is less chance of further interest rate increases (sadly at the time of writing the Rand/Dollar exchange rate is taking a pounding as the ANC mauls over the ridiculous idea of Nationalizing the SARB), and this will concern SARB. As a weakening exchange rate poses the risk of increased import prices, which will lead to higher domestic prices and therefore higher rates of inflation. Hopefully this idea is a flash in the pan instead of something that is seriously considered by the ANC and that the ZAR can make up some of the recently lost ground. As inflation within the inflation target band for prolonged periods will make it very hard for SARB not to lower interest rates (to assist the ailing economy).
Data sources:
https://www.statssa.gov.za
https://www.statssa.gov.za