Johannesburg - The moderation in both food and energy price growth was the main reason for lower Consumer Price Index (CPI) inflation rate in September, Investec said on Wednesday.
“For much of this year, the elevated level of food price inflation was related to domestic supply side issues, reflected in the spike in maize prices in the first quarter of 2014,” economist Kamilla Kaplan said in a statement.
As a result, the trend in domestic food prices diverged markedly from international food prices.
According to the UN Food and Agriculture Organisation price index, in September global food prices contracted for the 14th consecutive month and fell to the lowest level since August 2010.
“Moreover, lower oil prices should ease food production cost pressures at both the agricultural and manufactured level,” Kaplan said.
Brent Crude oil prices decreased to US86.6 per barrel from US112.4 in June.
“The decline has countered the effects of rand weakness, with rand denominated Brent crude price growth contracting in both September and October,” she said.
“Several factors will limit the upside risks to inflation and contribute to keeping CPI inflation within the target band. These factors include low commodity prices and subdued domestic demand.”
However, the extent to which CPI inflation slowed could be restricted by exchange rate movements and increases in administered prices.
In particular, regulated energy prices would rise after the National Energy Regulator of SA granted Eskom a 12.69 percent increase in the electricity price, to be implemented in April 2015.
Nevertheless, the favourable change in inflation over the SA Reserve Bank's forecast horizon, coupled with the under-performance of the economy, encouraged gradual monetary policy normalisation.
“We expect the repo rate to remain unchanged in November,” she said.
Earlier, Statistics SA said CPI dropped to 5.9 percent in September from 6.4 percent in August.
“This is the first month since February that it is below the ceiling of the Reserve Bank's target,” Stats SA said.
“The 0.5 percent drop in the rate was largely because of a 67c/l drop in the petrol price. This is equivalent to a decrease of almost five percent.”
The inland price of 93 unleaded petrol was now only 14c more than it was in September 2013.
Food prices were unchanged on average in September, compared to August, bringing the annual rate down to 8.5 percent compared to 9.4 percent for August.
The price of maize meal declined by 1.3 percent over the course of the month. It has increased by only three percent since September last year. - Sapa