Inflation slows sharply in October, paving the way for another ...

Data from Statistics South Africa showed that the CPI annual rate braked to 2.8% – a four-year low

Annual inflation slowed sharply in October to 2.8% from 3.8% in September, the lowest reading in South Africa since June 2020 when it was 2.2% and making an interest rate cut on Thursday a near certainty.

On a month-on-month basis, consumer prices fell by 0.1% in October compared with an increase of 0.1% in September, according to data from Statistics South Africa.

Falling fuel prices were the primary factor behind the slowdown in October, with petrol and diesel prices declining by 5.3% between September and October. 

The price for inland 95-octane petrol in October dropped to R21.05 a litre, the cheapest since February 2022 when it was R20.14.

Annual inflation for food and non-alcoholic beverages retreated to 3.6% in October, after remaining steady for six months within a 4.5% to 4.7% range, Stats SA said. This is the lowest rate since November 2019, when food inflation was 3.5%.

Other positive contributors to the inflation decline were housing and utilities, miscellaneous goods and services (computers, televisions and postal services) and alcoholic beverages and tobacco. 

The Bureau for Economic Research (BER) predicted lower inflation for October.

“This is largely on the back of a double-digit decline in the petrol price component of CPI. This is why we see a sub-4% CPI for the remainder of the year. Core CPI, which excludes fuel and food, should remain steady at around 4.1% y/y in October,” BER chief economist  Lisette IJssel de Schepper said in a note. 

She said the South African Reserve Bank (Sarb) would welcome the slowdown in CPI during its monetary policy meeting concluding on Thursday with an announcement of the latest decision on interest rates. The expectation that inflation should settle about 4.5% over the medium term should prompt another 25 basis point cut in the repo rate, she added.

“While there is still lots of uncertainty around the actual impact on the (global) economy of a [Donald] Trump presidency, the concern that his policies could be inflationary and/or lead to a sustained stronger dollar (that is, a weaker rand) means that a 50bps cut is unlikely.”

The dip in inflation below the 3% to 6% target range should be temporary and, as such, the Reserve Bank will probably look through this decline in its interest rate decision, Standard Bank’s group head of South Africa macroeconomic research, Elna Moolman, said in a note.

“The Sarb typically focuses on inflation 12-18 months ahead when monetary policy can have an impact on the inflation print. We think that the Sarb will gradually cut  interest rates until they are no longer restrictive,” Moolman said. 

At the last MPC meeting in September, the central bank cut interest rates by 25 basis on the back of a dip in headline inflation and a stronger rand. 

The reduction was the first in more than four years and left the repo rate at 8%.