Photo by Delwyn Verasamy/M&G
South Africa’s consumer inflation eased to 4.4% year-on-year in August from 4.6% in July, reaching its lowest level in more than three years and backing the case for the South African Reserve Bank to cut interest rates this week.
According to data released by Statistics South Africa on Wednesday, inflation slowed for a third consecutive month in August — to the lowest it has been since April 2021 — and dipped below the midpoint of the central bank’s 3-6% target band.
Lower annual rates were recorded for several product groups, most notably transport, housing, as well as restaurants and hotels.
The price of fuel has a significant bearing on inflation. According to Stats SA, fuel prices continued to trend downward, declining for a third consecutive month. The fuel index dipped by 0.5% month-on-month, slowing the annual rate to 1.8%.
Motorists using inland 95-octane petrol paid 15 cents less a litre in August (R23.11) compared with July (R23.26). Diesel followed a similar trend, with motorists enjoying a fourth consecutive cut. The average price for a litre of diesel was R23.23 in August compared with R23.35 the month before.
The Bureau for Economic Research (BER) had predicted CPI to slow to 4.5% year-on-year in August while Nedbank economists forecast it to remain steady at 4.6%.
“The downside in CPI will be counterbalanced by food prices, which are expected to start picking up as the base effect diminishes and the impact of dry weather conditions earlier in the year filters through certain food categories,” Nedbank said.
According to Stats SA, inflation for food and non-alcoholic beverages as well as alcoholic beverages and tobacco edged higher in August. After an eight-month downtrend, annual food and non-alcoholic beverages inflation rose to 4.7% from 4.5% in July.
Most product groups registered higher annual rates, including bread and cereals; meat; fish; milk, eggs and cheese; oils and fats and vegetables. Lower rates were recorded for fruit; sugar, sweets and desserts; and both hot and cold beverages.
Agricultural economist Wandile Sihlobo wrote in the Mail & Guardian last month that a rise in the prices of bread and cereals and meat products would see a slight uptick in the direction of food inflation.
Stats SA published the August inflation data a day before the central bank’s monetary policy committee concludes its three-day meeting, where economists expect it to cut the benchmark repo rate by 25 basis points to 8%.
“There is a risk that the Sarb [South African Reserve Bank] could decide to frontload cuts and reduce the repo rate by 50bps, but this seems a less likely scenario. Inflation has come down significantly in recent months,” the Bureau for Economic Research said.