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Uptick in inflation figure leaves little room for interest rate cuts

A file photo of a Coca-Cola bottling plant. Annual inflation for food and non-alcoholic beverages declined for a fifth straight month, softening from 9.9% in July to 8.0% in August.

A file photo of a Coca-Cola bottling plant. Annual inflation for food and non-alcoholic beverages declined for a fifth straight month, softening from 9.9% in July to 8.0% in August.

Published Sep 21, 2023


Consumer prices in South Africa could continue rising until the end of the year as global oil prices are on a hike, leaving the SA Reserve Bank (SARB) little room to start cutting interest rates from the current 13-year high.

Statistics SA (Stats SA) said yesterday that the headline annual consumer inflation ticked up to 4.8% in August, up from 4.7% in July, after four consecutive months of decline.

Stats SA said the upward pressure came from the ‘food and non-alcoholic beverages’, ‘housing and utilities’ and ‘miscellaneous goods and services’ categories.

Stats SA’s Patrick Kelly said inflation for food and non-alcoholic beverages (NAB) continued to cool, taking some of the heat off the headline rate.

“Annual inflation for food and non-alcoholic beverages declined for a fifth straight month, softening from 9.9% in July to 8.0% in August. Except for fruit, all food and non-alcoholic beverages categories recorded lower annual rates in August,” he said.

However, Kelly said this was not enough to counteract a rise in fuel prices and increases in municipal tariffs, which are surveyed in July and August.

“Electricity tariffs increased by 15.3% in 2023, much higher than the 7.9% rise recorded in 2022. Households paid 9.6% more for water in 2023 after bearing the brunt of an 8.1% rise the year before. Property rates were up by 8.4% following a 4.3% increase in 2022,” Kelly said.

“Fuel prices increased by 2.2% between July and August, lifting the annual rate from -16.8% in July to -11.7%.”

Stats SA said core inflation, which excludes food and fuel prices, increased slightly to 4.8% in August from a 10-month low of 4.7% in July.

Economists are expecting inflation to drift slightly higher towards the top end of the SARB’s target range of 3% to 6% in the coming months as the base effect dissipates and global oil prices rise.

The petrol price also rose by 37c a litre in August, contributing some slight upwards pressure to inflation.

A weak rand and higher international oil prices resulted in a sizeable fuel price hike of R1.71 a litre in September, which should shift fuel prices back into inflationary territory after recording annual deflation in the past three months.

October is also currently on course to see a petrol price rise of R1.20 a litre so far, which will provide a further contribution to inflationary pressures.

FNB senior economist Koketso Mano said that adjusting their forecast with this outcome suggested that headline inflation could rise to 5.5% in September as monthly inflation lifts, primarily supported by higher fuel prices.

Mano said the undervalued rand should continue to exert upward pressure on broader imported inflation.

“Nevertheless, we anticipate that headline inflation will average around 6.0% this year, lower than (the) 6.9% last year, having benefited from earlier positive base effects as well as constrained consumer spending that should limit the extent of input cost passthrough,” Mano said.

“However, a resurgence in global energy inflation will be concerning to central banks, maintaining upward risks to interest rates.”

On a monthly basis, consumer prices went up by 0.3% in August, after a 0.9% rise in July and slightly above market estimates of a 0.2% increase.

Investec chief economist Annabel Bishop concurred that base effects provided upwards pressure as expected for August’s consumer inflation rate, and would continue for the remainder of this year and into early next year.

“We continue to expect CPI inflation will average 5.8% y/y (year-on-year) this year. The rand and fuel prices pose risks, and so do El Niño weather pattern effects for food prices next year, with SA at risk of drought then,” Bishop said.

Notwithstanding stubborn inflation, the SARB’s Monetary Policy Committee (MPC) is still expected to keep rates on hold on Thursday, albeit with more hawkish rhetoric, cautioning that it might tighten policy further if supported by data developments.

Anchor Capital investment analyst Casey Delport said the August inflation print would not be factored into the MPC’s updated forecasts, but these should still be part of the committee’s deliberations ahead of the rate decision.

“Nonetheless, the latest jump in global oil prices is a notable risk to the short- to medium-term inflation trajectory, as is the recent rand weakness,” Delport said.

“Still, in the absence of second-round inflation pressure, we expect the SARB to look through the first-round inflation impact of these types of supply-side shocks, especially as inflation should remain well below its recent peak and real rates remain restrictive.”