South Africa’s latest headline inflation figure surprised markets by climbing higher than economists expected – but the South African Reserve Bank (SARB) is unlikely to hike interest rates when it meets tomorrow. <\/p>\n\n\n\n
Inflation jumped from 5.4% in September to 5.9% in October – higher than the market expectations of between 5.4% and 5.7%. The month-on-month increase of 0.9% was the most significant change in consumer inflation in three months. <\/p>\n\n\n\n
Inflation is now at the upper end of the SARB’s target range of 3% to 6%. <\/p>\n\n\n\n
The increase was mainly due to the increase in higher food price inflation – primarily due to the panic buying of chicken and eggs, with inflation for food and non-alcoholic beverages (NAB) climbing from 8.1% in September to 8.7% in October. <\/p>\n\n\n\n
Egg prices jumped by 13.4% from September, pushing the annual rate to 24.4%. The prices for poultry-related products were highly affected by the avian flu outbreak, resulting in the culling of millions of chickens. <\/p>\n\n\n\n
Transport inflation also jumped from 4.2% in September to 7.4% in October – this rise was primarily due to the 6.5% monthly increase in the fuel price.<\/p>\n\n\n\n
This price of inland 95-octane petrol rose from 24.54 per litre in September to R25.68 per litre in October – the second-highest price ever. <\/p>\n\n\n\n
However, November saw a large petrol price cut of R1.78\/litre, exerting downward pressure on the inflation outcome. A roughly R1.00 petrol price cut is also lined up for December, bringing further relief to inflationary pressures. <\/p>\n\n\n\n
“The MPC meets tomorrow to make its interest rate decision and will likely have a hawkish tone, although on balance, should keep interest rates unchanged<\/strong>,” Investec’s Annabel Bishop said. <\/p>\n\n\n\n “The MPC\u2019s last meeting forecast CPI inflation at 5.9% y\/y for 2023 and 5.1% y\/y for 2024, and today\u2019s figure is unlikely to change its 2024 view, with the SARB currently mainly targeting inflation in 2024.”<\/p>\n\n\n\n This sentiment was echoed by Nedbank, which said that, since monetary policy is forward-looking, October\u2019s inflation print should have an immaterial effect on the MPC’s decision.<\/p>\n\n\n\n “We still believe the SARB has done enough to contain inflation and ensure a sustainable return to the 4.5% target. This is evident in weaker domestic demand, slower household credit growth, and rising debt defaults,” it said.<\/p>\n\n\n\n “We acknowledge the various upside risks to the inflation outlook; however, we maintain that diminishing consumer demand will offset these risks. Therefore, we expect the SARB to leave interest rates unchanged tomorrow and start a mild easing in 2024.”<\/p>\n\n\n\n
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