Johannesburg - South Africa’s headline inflation for October rose yesterday to 6.4 percent from 6.1 percent in September, breaching the upper limit of the Reserve Bank for the ninth time in 2016 as food prices climbed.
The surprise upside would probably drive some of the hawkish rhetoric at the monetary policy committee (MPC) meeting this afternoon, where it would announce its rate decision, said Peter Attard Montalto, an emerging market analyst at Nomura.
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However, despite the news, the MPC is still expected to keep the interest rate unchanged at 7 percent.
The latest print was above the market consensus of 6.3 percent.
Separately, the latest consumer confidence index figures from Nielsen yesterday reflect a huge upward swing by 9 points from 78 points in the second quarter to 87 points in the third quarter.
The rand paused its rally yesterday after leading currency gains and was trading 0.12 percent weaker at R14.2503 against the dollar at 5pm, its first decline in four days.
The country's core inflation, which excludes food, non-alcoholic beverages, energy and petrol, quickened to 5.7 percent from 5.6 percent, Statistics SA (Stats SA) said yesterday.
Wait-and-see
Hanns Spangenberg, an analyst at NKC African Economics, said while he expected the Reserve Bank to take note of the rising inflationary pressures, his baseline scenario was for the central bank to adopt a wait-and-see approach ahead of the upcoming sovereign debt rating reviews, as well as the market's reaction once the reviews were released.
“Furthermore, we deem it likely that the Reserve Bank will wait to see if the US Federal Reserve adjusts its interest rates in December, although a hike by the US central bank is widely expected.”
Food prices, which have been pushed up by the worst drought in more than a century, rose to 12 percent from a year earlier and 0.9 percent from September, Stats SA said.
Food inflation picked up 1 percent month on month, while inflation in bread and cereal prices remained at 16.5 percent, and meat price inflation stayed within the 3 percent to 6 percent target band.
“Over the course of 2017 we expect a faster rise in meat prices as farmers are likely to focus on rebuilding herds that were culled during the drought, limiting meat supply and forcing prices higher,” said Sanisha Packirisamy, an economist at MMI Investments and Savings.
“Nevertheless, a sharp move lower in rand maize prices thanks to an improvement in rainfall should allow food inflation, overall, to fall meaningfully to an estimated 2 percent by the end of 2017,” Packirisamy said.
South Africa’s Pioneer Food, Astral Foods and Rhodes Food expected the severe drought and weak economic growth to weigh on their businesses in the 2017 financial year, the companies said on Monday after reporting results.
Astral said: “The weakened state of consumer spending is unlikely to improve due to poor economic growth and higher unemployment, which will continue to constrain an increase in the per capita consumption of poultry.
“High maize and feed prices will continue for at least the first half of 2017 on the back of the severe drought.”
The government expects the 2016 maize harvest to be 28 percent lower at 7.16 million tons, with an improved harvest next year when rainfall is expected to increase.
The Nielsen global survey of consumer confidence and spending intentions yesterday found that consumer confidence in South Africa swung up 9 points in the third quarter.
The survey was conducted between August 10 and September 2.
Bryan Sun, the managing director of the southern Africa cluster at Nielsen, said the survey saw a definite increase in overall consumer confidence in the measurement period, which coincided with the Âmunicipal elections and a subsequent strengthening of the rand. “This obviously had a positive effect on sentiment.”
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