Inflation will remain high for months

The decline in the inflation rate is good news for consumers, but inflation is expected to remain high for at least the next few months. After reaching a fresh 13-year high of 7.8% in July, the headline inflation rate eased to 7.6% during August.

A moderation in transport inflation, thanks to fuel price decreases in August, offset a buildup in food and clothing price pressures.

The consumer price index increased by 0.2% compared to August, compared with 1.2% compared to July.

Economic research group Oxford Economics Africa said it expected to see disinflation over the coming months, but price inflation will remain sticky at elevated levels.

The main contributors to the annual inflation rate were food and non-alcoholic beverages (+11.3% and contributing 1.9 percentage points), housing and utilities (+4.0% and contributing 1.0 percentage points), transport (+21.2% and contributing 2.9 percentage points) and miscellaneous goods and services (+3.7% and contributing 0.6 percentage points).

Core inflation, which excludes volatile items such as food, non-alcoholic beverages, fuel and energy, dipped by 0.2 percentage points to reach 4.4% compared to last year in August.

The latest data also shows that goods inflation moderated from 11.5% compared to last year to 10.9% compared to last year in August, while annual services inflation quickened to 4.3%, compared to 4.2% compared to last year in July.

Oxford Economics Africa said with further reprieve from petrol prices expected in October, transport inflation should continue to moderate towards the end of the year, but elevated costs across the board mean price inflation will remain high over the coming months.

“The headline rate is only expected to dip below the upper-end of the South African Reserve Bank’s (Sarb) target range of 3%-6% in the second quarter of next year.

“Overall, inflation is expected to average 6.8% this year compared to 4.5% in 2021.”

The group believes a 50 basis points increase in the repo rate would be “enough” given South Africa’s inflation situation.

“However, hawkish pressure from the US Fed and the rand’s recent rout imply that the Sarb is more likely to hike rates by 75 basis points this round.”

The group expects the Sarb will wrap up its current hiking cycle in the first quarter of next year.

Exacerbated by the return of load shedding, the rand fell to R17.70 against the US dollar.