Good times for inflation in South Africa are over: Nedbank

 ·20 Sep 2023

South Africa’s latest inflation figures remain squarely within the South African Reserve Bank’s target range (3%-6%) – but economists at Nedbank say that it isn’t expected to go down further any time soon

This is because the year-on-year “base effect” is now at an end, and the inflation figures are more reflective of a like-on-like economic situation.

The rapid disinflation that had taken place over the last few months was largely due to the spike in inflation experienced over the same period in 2022, driven by the war in Ukraine.

August’s figures, however, reflect a more comparable picture, without these anomalous trends in play.

According to Stats SA, inflation edged up slightly higher in August, posting a figure of 4.8% (from 4.7% YoY in July). This was largely in line with expectations, where most analysts predicted a flat rate.

Because of this, Nedbank said that inflation is likely to drift slightly higher in the coming months as other factors put pressure on CPI.

“We expect inflation to drift slightly higher in the coming months as the base effect dissipates. Upward pressure will stem from moderately higher fuel prices, rising operating costs due to Eskom’s electricity tariff hike and the return of severe load-shedding, and continued rand weakness,” the group said.

This is not true for everything in the basket, however. The bank said that food inflation will likely moderate further off a high base, kept in check by generally subdued global food prices and shrinking domestic demand.

But even this is because of some base effects that are still in play.

“The rate of deceleration will probably bottom out as the global price cycle gradually turns with spikes in selective food products due to unfavourable weather conditions, war-induced logistical bottlenecks, and trade restrictions in some countries,” it said.

Another positive is that core inflation will be contained – but this is due to weaker domestic demand, limiting the rate at which firms can pass cost increases onto consumers, the bank said.

Despite the expected upturn in inflation, Nedbank said that inflation rate should remain fairly stable, sticking to relatively subdued levels below the upper end of the SARB’s target, hovering at around 5% over the final months of this year, averaging 5.9% in 2023.

“In 2024, we expect inflation to be sticky just above 5% in the first six months before stabilising close to 4.5% over the year’s second half.”

The bank warned, however, that on balance, the risk to the forecast still resides on the upside, due to a vulnerable rand, the upcoming El Niño weather pattern and persistent load-shedding, which could still cause food and fuel prices to settle higher than anticipated.

Generally speaking, though, with inflation expected to remain within the target range, the bank expects that the South African Reserve Bank will likely hold on rates at its meeting on Thursday (21 September) and the final meeting for the year in November.

Read: Big interest rate decision for South Africa tomorrow – what to expect

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