SA consumer inflation slows but doesn’t stave off interest rate hike

Consumer inflation slowed to 7.6% in August from 7.8% in July, Statistics South Africa said on Wednesday, 21 September. This raises the prospect that inflation has peaked but did not stay the hand of the South African Reserve Bank (SARB), which hiked rates again on Thursday by 75 basis points.

The latest inflation figure is a rare piece of recent good news on the economic front: a key indicator that is moving in the right direction.

Among other things, it provides some vindication for the SARB’s current tightening cycle and determination to bring inflation back within its mandated 3% to 6% target range.

Having said that, there is not much the

SARB can do to contain inflation driven by external shocks such as Russia’s war in Ukraine.

Though the number offers hope that South African inflation peaked at 7.8% in July, the Consumer Price Index (CPI) is expected to remain above the top range of the SARB’s target for the rest of the year.

“Our projections are for monthly price pressures to remain moderated for the remainder of this year.

“Annual inflation, however, should remain above 6%, likely posting 7.7% in September and averaging close to 7% for 2022,” Koketso Mano, FNB senior economist, said in a note on the data.

“There is a likelihood that headline inflation peaked at 7.8% in July, given the trends in fuel prices, but this view could be strongly challenged by rapid food inflation.”

Roaring oil prices fuelled this year in large part by Russia’s invasion of Ukraine have stoked global and South African inflation, but there is now some relief in this regard. Fuel prices decreased 3.8% month on month in August because of the more than R1 per litre cut in petrol prices at the pump.

But year-on-year fuel inflation was still 43.2% – that number only looks good in contrast to July, when it was raging at 56.2%.

Worryingly, domestic food inflation continued to accelerate even as global food price rises have moderated in recent months. The food and nonalcoholic beverages (NAB) component of CPI raced to 11.3% in August from 9.7% in July.

“Nine of the 11 food and NAB categories recorded an annual inflation rate above 8.0% in August,” Statistics South Africa said in a statement.

“Bread and cereals registered an increase of 3.1% between July and August, pushing the annual rate from 13.7% to 17%. Maize meal increased by 4% from July, taking the annual rate to 29.1%.”

These trends are adding to the burden of lower-income and working-class households, which have limited disposable income, given an unemployment rate of almost 34%. That could well drive wage demands over the coming months and into next year.

Inflation may finally be ebbing – or maybe not – with a lot hinging on the performance of the rand, which early on Friday was hovering around 17.83/dollar. Load shedding is also load shedding the value of the rand and, if the current surge in power cuts cannot be eased, it could certainly falter further.