April CPI Hits 4% As Transport Costs Spike Following Sharp Fuel Price Increases

Transport CPI inflation was the key driver of the surge in CPI inflation, but still not the single biggest contributor to overall CPI inflation.

The Transport sub-index, the index within which fuel prices reside, increased its contribution to overall the CPI inflation rate significantly from -0,2 of a percentage point in March to +0,7 of a percentage point in April. This swing was largely responsible for the surge in CPI inflation to 4%.

The Transport CPI inflation rate was 4,9%, with the fuel-cost component of this index inflating year-on-year by 11,4%.

At the beginning of April, domestic petrol prices rose sharply by over R3/l, and diesel prices by over R7/litre, driving the CPI – Transport Fuel sub-index of the CPI sharply higher. However, the Housing and Utilities CPI remains the biggest inflation driver.

While much is being said of fuel-price increases, the Housing and Utilities CPI, the major sub-index with the largest weighting in the overall CPI, remained the biggest single contributor to the April CPI inflation rate, accounting for 1,2 percentage points of the overall 4,0% inflation rate. This major sub-index inflated by 5,2% year-on-year in April. This is driven in part by 4% residential rental inflation and 3,9% owner-equivalent rental inflation.

However, it is the municipal rates and utilities tariffs component of this CPI sub-index that are most troublesome inflation-wise, with the Electricity CPI inflating at 8,2% and the “Water Supply and Miscellaneous Services” CPI (municipal rates and non-electricity utilities tariffs) inflating by 7,0%.

Insurance and financial services showed the highest inflation of the major CPI sub-indices

The highest inflation rate of the major CPI sub-indices was that of Insurance and Financial Services, recording 5,7% year-on-year, Education at 5,4% and Restaurants and Accommodation Services on 5,2%.

Food-price inflation was subdued, but there are risks emanating from the Gulf Conflict. Thankfully, the all-important Food and Non-Alcoholic Beverages CPI showed moderate inflation of 2,9%. However, we await the coming months’ data to see what the potential impact of high diesel prices along with Gulf War-induced fertilizer shortages might have on food prices.

Implications of the CPI inflation surge for the consumer

In my economic growth forecast, I have projected a slowdown in real household disposable income growth, in part due to rising inflation eating into household income, and also because higher inflation can drive interest-rate hiking which can further eat into disposable income.

The result is a forecast slowdown in real household consumption expenditure growth from last year’s 3,6% to 1,6% in 2026. This in turn is expected to contribute to economic growth falling back to below 1% in 2026.

Luxury and non-essential spending is likely to see its growth slow, along with low frequency “postponeable” purchases. This is likely to lead to the most notable growth slowdown being in the area of durable (including furniture, household appliances and motor vehicles) and semi-durable (including clothing and footwear) consumer spend.

Holiday and leisure spending growth is also likely to slow as consumers reprioritise expenditure, especially given that such spending often includes transport at costs now highly inflated by the fuel-price increase.

Implications for the Sarb interest-rate decision in May – expected 25 basis point interest-rate hike.

The April inflation rate, along with the already-known May fuel price hike likely to drive a further rise in overall CPI inflation, is expected to influence the Sarb MPC (Monetary Policy Committee) interest-rate decision late in May. In addition to the already-known numbers, at time of writing the Gulf conflict, and resultant elevated oil prices, has not been resolved, raising the risk of further inflationary pressure to come.

The Sarb will be concerned with second-round effects from fuel-price inflation, as suppliers through the supply-chain attempt to pass on fuel-related input cost increases in their own product pricing.

As such, I expect a 25 basis point interest-rate hike at the May Sarb MPC meeting.