In South Africa, inflation remained elevated at 5.7 percent (year-over-year) in February for two consecutive months, slightly down from 5.9 percent in December 2021.46 The moderation was due to lower fuel prices whereas food prices continue to explain higher consumer prices. The South African Reserve Bank reacted to the inflation profile by raising the policy rate by 25 basis points in March to 4.25 percent for three consecutive meetings. Core inflation, however, remained somewhat lower at 3.5 percent (year-over-year). In 2021, inflation hovered around the midpoint of the official target at 4.6 percent. However, ongoing developments in international food and fuel prices will accelerate inflation to 5.5 percent in 2022, but it will revert back and settle around the midpoint of the target in 2023. Other options to protect consumers from high fuel and gasoline prices include a two-phased approach to a temporary partial reduction in the fuel levy. Official estimates indicate that the fuel levy will cost approximately R6 billion in income tax and will be funded by the liquidation of a fraction of the strategic crude oil reserves, with little to no effects on the fiscal framework.
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Consumer Price Index: Food and Non-alcoholic Beverages index, January 1, 2021=100
The rapid passthrough of food prices to consumer prices is largely explained by the high contribution of food to the CPI basket in SubSaharan African countries.
Inflation dynamics in Nigeria paint a completely different picture from the one in South Africa. Unlike South Africa, where inflation has been within the target band of 3 to 6 percent since 2017, inflation in Nigeria has been above the upper limit band of 6 to 9 percent since the recession in 2016. It reached a four-year high in 2021, reaching 17 percent, from 13.2 percent a year earlier. Rising food prices are the underlying factor behind the surge of headline inflation in Nigeria. Food prices have increased due to import restrictions and a nonflexible exchange rate management (figure 1.39). The current regime is keeping the official exchange rate of the naira artificially strong while the naira has weakened significantly on the parallel market. Additionally, the central bank has restricted importers’ access to foreign currency for 45 products and has reduced the supply to other importers. Inflation reached a four-year high FIGURE 1.40: Food Price Index in Countries in Sub-Saharan Africa at 18.2 percent in March (January 2021=100) 2021, then eased to 16.0 150 percent in October 2021 as food price inflation 140 fell from a peak of 22.9 130 percent in March to 18.3 percent. Headline inflation 120 rose to 15.7 percent in February 2022, up by 110 0.1 percentage point 100 from the two preceding months. Food and fuel 90 shortages put pressure on consumer prices despite Angola Congo, Rep. Ghana Kenya fuel subsidies. Inflation is Mozambique South Africa Uganda Zambia expected to remain high Sources: Bloomberg Analytics (exchange rates); Haver Analytics (food prices). as the negative effects of Note: Exchange rate data are as of April 1, 2022. the war in Ukraine are still 46 The effects of the war on inflation are not yet reflected in the current data. Consumer inflation data as of February 2022 contain information that may somewhat capture the effects of the outbreak of the war in Ukraine.
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