South Africa’s October inflation rises near top of central bank target

A man pushes a trolley loaded with a bag of maize meal outside a spaza shop in Thembisa, on the East Rand, in South Africa, August 2, 2023. REUTERS/Siphiwe Sibeko/File Photo
pushes a trolley loaded with a bag of maize meal

Because of sharp price increases in food, transportation, and healthcare, inflation in South Africa accelerated more quickly than anticipated in October, moving closer to the top end of the recommended range for the country’s central bank.

According to statistics provided by Statistics South Africa, headline consumer inflation increased to 5.9% year-on-year in October, up from 5.4% in September (ZACPIY=ECI). The forecasted 5.5% result was higher than what Reuters’ analysts polled achieved.

The South African Reserve Bank (SARB) has an inflation goal range of between 3% and 6% and will disclose its decision about the country’s interest rate for the final time this year on Thursday.

According to Razia Khan, chief economist for Africa and the Middle East at Standard Chartered, “although fuel price pressures were widely anticipated, no one had forecast a spike back in y/y headline inflation.”

Khan stated that decreases in the price of gasoline were to be anticipated and that inflation would continue to fall after the new year.

“However, the greater starting point is significant for the progression of the inflation rate. Because of this, the SARB will not be able to adopt a dovish tone any time soon, and certainly not tomorrow,” she continued.

After ten consecutive rate increases, the South African Reserve Bank (SARB) has maintained its key interest rate (ZAREPO=ECI) at its most recent two policy meetings. The SARB has emphasized that it needs to see inflation persistently at the midpoint of its goal range before considering cutting interest rates.

As a result of the higher-than-anticipated reading on inflation released on Wednesday, analysts at Capital Economics said there was a greater danger that policymakers would opt to postpone the beginning of the relaxation of monetary policy until much later in 2024.

“As things stand right now, we believe that the first-rate drop will be implemented early in the following year and that rates will be decreased from 8.25% to 7.50% by the end of 2024. Despite this, the odds are stacked in favor of the easing cycle beginning even later, as they stated in their research note.

Core inflation (ZACPYY=ECI), which does not include changes in the price of food or fuel, decreased to 4.4% year-on-year in October from 4.5% in September, providing some solace to policymakers at the South African Reserve Bank (SARB).


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