Expect stronger inflation numbers this month: Absa

According to Absa, South Africa’s core inflation rate likely surged at the quickest rate in six years in February, owing to a steep spike in health-insurance costs.

According to Absa economists led by Miyelani Maluleke, the core consumer price index, which excludes the impacts of volatile commodities like as food and energy, climbed an annual 5.2% last month from 4.9% in January.

It would be the highest rate since February of this year. According to them, overall inflation has likely accelerated to 7% from 6.9%.

The MPC prefers to anchor expectations at the midpoint of the 3%-6% inflation target range. During the past three months, core inflation has not increased.

“Given elevated concerns about inflation risks currently, the market may initially read such a jump in core CPI inflation as an indication of broadening inflationary pressures,” the economists said. “However, the data should be watched more closely to distinguish between widening inflationary pressure and idiosyncratic factors related to medical-health insurance.”

Health insurers, including Discovery Ltd., South Africa’s largest medical-aid provider, as well as Medihelp Medical Aid and Momentum Health Medical Scheme, have begun raising prices after keeping them low for the past two years, as claims return to pre-Covid-19 levels, the cost of care rises, and excess reserves shrink.

“Based on announcements by various medical aid scheme providers, we estimate that health insurance premium inflation will average 6.4% in 2023, up from 4.2% in 2022,” the Absa economists said. “Given that the category accounts for 7.1% of headline CPI and 9.5% of core CPI, the higher inflation will have an appreciable effect on the CPI data when surveyed in February and April.”

Yet, growing price pressures from the rand’s 7% devaluation versus the dollar this year, as well as rising food and petrol prices, may prompt the central bank’s monetary policy committee to raise interest rates when it meets at the end of the month. Forward-rate agreements, which traders use to speculate on borrowing costs, indicate a 25 basis-point increase.

Statistics South Africa, located in Pretoria, will issue February inflation figures on March 22.

Absa is South Africa’s third-biggest bank.