CPI drops to its lowest level in eight years

 

 

The consumer price inflation (CPI) has come in at its lowest level in eight years, at an annual 3.7% as measured in October, down from 4.1% in September, according to Statistics South Africa (Stats SA).

The last time the CPI was at 3.7%, was in February 2011.

Dennis Dyke, the chief economist at Nedbank, said the drop is much lower than the 3.9% number expected by the market. Dyke said the lower inflation maybe gives the South African Reserve Bank (SARB) ability to relax policy.

He said the lower CPI is encouraging as it has come down without any special factors like a big collapse in oil prices or recovery in the rand. But Dyke cautioned that the lower CPI is also the result of a weak economy.

Portfolio manager at First National Bank, Wayne McCurrie, said the Central Bank had the view it must maintain higher interest rates to attract capital to South Africa, which keeps the rand stable and allows the government to issue debt.


When you cut interest rates, the rand becomes less attractive and investors steer clear as they earn less on their investments. McCurrie said the dilemma for the monetary policy committee (MPC) is that if it does not cut rates, the economy will not grow. “If the economy does not grow, who would want to come and invest here?”

“Normally the danger of cutting interest rate is that the inflation will go up because people will spend more. But under current economic conditions and today’s inflation number, higher inflation is not a risk that the Reserve Bank has to worry about,” he said.

Factors that contributed to the lower CPI were food and non-alcoholic beverages; housing and utilities; and miscellaneous goods and services.

McCurrie said inflation has not been this low in the longest time. “The economy is weak and no manufacturer or retailer can actually push price increases,” he said.

McCurrie said the low CPI is also due to a relatively stable rand. He thinks the SARB should cut interest rates by half a percentage point.

Its MPC will make a decision on interest rates on Thursday at its final meeting for the year.

McCurrie said other countries were cutting rates too. “But I am not 100% sure that the Reserve Bank will cut interest rates because they are truly concerned about the deficit and the overall government debt.”

Stats SA said the drop in the annual rate is mainly the result of increases between September and October 2018 moving out of the 12 month window of the year-on-year inflation rate.

Notable amongst these was the R1 per litre increase in fuel price which took the inland 95 octane price to R17.80  a litre last year October while, this year the price is lower at R16.21 a litre.

Subscribe to the M&G

These are unprecedented times, and the role of media to tell and record the story of South Africa as it develops is more important than ever.

The Mail & Guardian is a proud news publisher with roots stretching back 35 years, and we’ve survived right from day one thanks to the support of readers who value fiercely independent journalism that is beholden to no-one. To help us continue for another 35 future years with the same proud values, please consider taking out a subscription.

Tshegofatso Mathe
Tshegofatso Mathe is a financial trainee journalist at the Mail & Guardian

Related stories

Indians in South Africa, a historical excerpt

In the book, The Indian Africans, academic Kiru Naidoo explores the society of colonial Natal in the late 1800s to early 1900

A colossus with feet of clay

South Africa is disproportionately targeted by cybercriminals. Digital attacks call for digital solutions and technology is a the prime weapon in this fight

The president, the preacher and the great escape

Malawi’s new president was furious after Shepherd Bushiri’s dramatic disappearance from South Africa

Patel: South Africa on target to attract R1.2-trillion in investments

The trade minister says the country is on track to reach more than R1-trillion worth of investments over five years, despite Covid-19 disruptions

South Africa must revisit and refresh its idea of itself

Covid has propelled citizens into feelings of a new shared identity in which the historical force of ‘whiteness’ is fading into irrelevance

Institutions of higher learning should commemorate their casualties

The bust of Matikweni Nkuna at Tshwane University of Technology is an example of how we should honour those who fought for equal access to education
Advertising

Subscribers only

Dozens of birds and bats perish in extreme heat in...

In a single day, temperatures in northern KwaZulu-Natal climbed to a lethal 45°C, causing a mass die-off of birds and bats

Q&A Sessions: Frank Chikane on the rainbow where colours never...

Reverend Frank Chikane has just completed six years as the chairperson of the Kagiso Trust. He speaks about corruption, his children’s views and how churches can be mobilised

More top stories

Eusebius McKaiser: Mpofu, Gordhan caught in the crosshairs

The lawyer failed to make his Indian racist argument and the politician refused to admit he had no direct evidence

Corruption forces health shake-up in Gauteng

Dr Thembi Mokgethi appointed as new health MEC as premier seeks to stop Covid-19 malfeasance

Public-private partnerships are key for Africa’s cocoa farmers

Value chain efficiency and partnerships can sustain the livelihoods of farmers of this historically underpriced crop

Battery acid, cassava sticks and clothes hangers: We must end...

COMMENT: The US’s global gag rule blocks funding to any foreign NGOS that perform abortions, except in very limited cases. The Biden-Harris administration must rescind it
Advertising

press releases

Loading latest Press Releases…