South African consumer price index (CPI) inflation is not seasonally adjusted. While CPI does not show seasonality when inflation is expressed in year-on-year terms, there is seasonality in the month-on-month dynamics of the headline index. The reason is that there are many components where prices are set annually in a specific quarter (such as insurance and education which tend to have price resets for the following year in Q1) and have had historically experienced inflation above the mid-point of the inflation target. This has implications for forecasting CPI and South Africa’s optimal inflation target or conduct by the central bank: a slightly higher target might be needed to accommodate predictable Q1 spikes without triggering unnecessary monetary tightening unless the central bank focuses on inflation metrics that have been purged of such seasonal patterns when making policy decisions.
