JOHANNESBURG – Consumer price inflation (CPI) rose 5.1 percent year on year in October from 4.9 percent in September, which was marginally lower than our expectation of a 5.2 percent year-on-year rise.
The main driver behind the acceleration was the 99c/l rise in fuel prices, which translated into a 10.5 percent year-on-year rise in transport inflation – this contributed 1.5 percentage points to headline inflation.
The recent decline in oil prices poses downside risk to our inflation forecast, if sustained headline inflation could average 5.2 percent year on year in 2019 against our current expectation of a 5.4 percent average.
The moderation in food inflation was more or less in keeping with our expectations – food inflation rose 2.9 percent year on year in October from 3.4 percent year on year in September.
Year-on-year bread and cereals as well as fruit price inflation continued to contract, and, excluding sugar, there was a broad-based moderation in food prices.
While we expect food inflation to remain relatively contained for the remainder of the year into the first half of the coming year, our forecasts point to an uptick in food inflation in the second half of 2019, as such a lower-than-anticipated rise in food inflation poses downside risk to our inflation forecast.
CPI for services remained eased to 5.1 percent year on year in October from 5.2 percent year on year in September. Goods inflation jumped from 4.8 percent year on year in September to 5.1 percent in October, led by a rise in durable and non-durable goods.
Core inflation (CPI excluding food, NAB, fuel and energy) remained unchanged at 4.2 percent year on year in October.
Persistently low underlying inflationary pressures suggest that the SA Reserve Bank’s expectations of an increase in core inflation to a 4.8 percent average over the quarter of 2018 are high.
The recent decline in oil prices and the improvement of the rand exchange rate may see the Reserve Bank downwardly revise its near-term inflation expectations. While our view is for a 25 basis-point increase in the policy rate, benign underlying inflation may delay a policy rate hike.
Mamello Matikinca is FNB’s chief economist.