Surging egg prices was one factor that led to a surprise uptick in consumer price inflation (CPI) to 5.9% in October as markets keep a wary eye on the SA Reserve Bank (SARB) rate decision today.
Eggflation – the surprise spike in the price of eggs caused by the outbreak of the avian flu – could result in the cost of borrowing remaining higher for longer as consumer prices rose for the third consecutive month in October.
Statistics South Africa (Stats SA) said yesterday that the annual headline CPI quickened more than expected in October, rising to 5.9% from 5.4% in September and well above the Bloomberg market consensus of 5.6%.
This was the highest inflation rate in five months since 6.3% reached in May, and well above market estimates of 5.5%, verging on the upper limit of the SARB’s target range of 3-6%.
Stats SA said upward pressure came primarily from prices of food and non-alcoholic beverages, transportation, health, restaurants and hotels, as all these categories recorded annual inflation rates above 6.0% in October.
Stats SA chief director for price statistics Patrick Kelly said food and non-alcoholic beverages surged by 8.7% in October from 8.1% in September, transport rose by 7.4%, health by 6.4%, and there was a 6.3% increase in restaurants and hotels 6.3%.
Kelly said egg prices rose sharply in October, with the price index increasing by 13.4% from September, pushing the annual rate to 24.4%.
“Prices for poultry-related products, including eggs, have come under increased upward pressure due to the outbreak of avian flu. The culling of millions of chickens resulted in market shortages and panic buying from anxious consumers,” Kelly said.
“Interestingly, price increases vary across the country. Western Cape consumers felt the most pain, with a tray of six eggs rising by R6.42 from an average price of R17.71 in October 2022 to R24.13 in October 2023.
“Gauteng consumers had to fork out an additional R4.81 over the same period. At an average price of R24.32, a tray of six eggs was the most expensive in Gauteng during October.”
The annual core inflation, which excludes prices of food, non-alcoholic beverages, fuel and energy, eased to a 14-month low of 4.4% in October, from 4.5% in September.
On a monthly basis, consumer prices inched up by 0.9% in October, the steepest increase in three months, also surpassing market forecasts of 0.5%.
Economists expect disinflation to resume from here and to return to the midpoint of the SARB’s target band by the end of next year.
“We expect inflation to moderate in the last two months of the year, mainly pulled down by lower transport costs on the back of softer global oil prices and a steadier rand,” said Nedbank economist Johannes Khosa.
“We forecast inflation to end the year at around 5%. We have revised the average forecast for 2023 slightly up to 6% from 5.8% due to October’s higher-than-expected outcome.
“We also expect inflation to hover around the 5.5% level for most of the first half of next year before falling more convincingly towards the midpoint of SARB’s target range during the second half, and averaging 5% in 2024.”
However, economists still warned that risks to the forecasts resided marginally to the upside due to the uncertainties surrounding the outlook for oil prices, food prices and the rand.
Due to rising inflation, it is possible that the SARB’s Monetary Policy Committee (MPC) will increase interest rates by 25 basis points today, taking the repurchase rate to a 14-year high of 8.5% per annum and prime lending rates to 12%.
The interest rate has been hiked 10 times by a total of 475 basis points since November 2021.
SARB governor Lesetja Kganyago has repeatedly warned that the interest rate may have to be hiked one last time.
Though there was consensus for the MPC to keep rates unchanged for the third consecutive time, Everest Wealth yesterday said an interest rate cut could give the economy a much-needed boost.
Everest Wealth CEO Thys van Zyl said increasing rates by a further 25 basis points would only further restrict consumer spending and be bad for the economy and drive foreign investors away.
“Consumers have had a hard time in the past year and a half and are struggling to keep their heads above water. A reduction in the interest rate can help them to breathe a sigh of relief and to escape from the debt spiral in which millions of South Africans find themselves,” Van Zyl said.
“However, any further interest rate hikes will be catastrophic for consumers. Consumers are at their wits’ end with sharp interest rate hikes as well as sharp increases in food prices, the price of petrol, power prices and other living costs.
“It is time to protect consumers before the last straw breaks the camel's back,” he said.
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