Inflation accelerated faster in August than economists expected
However, the uptick remains within the SA Reserve Bank’s target range of between 3% and 6%
Annual consumer price inflation (CPI) rose in August to 4.3%, a step-up from the 4% recorded in July, Stats SA announced on Wednesday.
The uptick was marginally above market expectations — a survey of 16 economists polled by Bloomberg had pegged CPI to come in at 4.2%.
The rise was driven by price increases in food and nonalcoholic beverages, housing and utilities, and miscellaneous goods and services.
Food inflation reached its highest levels in 18 months, the agency said, driven by increases in bread and cereal, mealie-meal prices and oil-based food items such as cooking oil and margarine, among others.
Housing and utilities also increased, as most municipalities set new rates and tariffs in July, according to Stats SA, seeing an increase of 5.3%, which contributed 1.3 percentage points to the overall increase. Electricity prices were also a factor as one remaining municipality increased tariffs during the month.
The increase — which comes ahead of the SA Reserve Bank’s monetary policy committee (MPC) announcement due on Thursday — nevertheless remains within the Bank's target range of between 3% and 6%. Inflation levels are a key factor the central bank considers when its determines interest rates.
Although recent monetary policy easing by the European Central Bank, as well as further expected rate cuts from the US Fed on Wednesday evening, have weighed in favour of arguments for an interest-rate cut, the majority of economists polled by Bloomberg believe a rate cut is unlikely.
The backdrop for emerging markets has been broadly unfavourable thanks to persistent global trade tensions, and the resultant negative implications for global growth, Investec economist Kamilla Kaplan said in a recent note.
“As such, the rand remains vulnerable to global financial market volatility. Moreover, event risk will rise over the coming months in view of the medium-term budget policy statement in October and the ratings agency reviews in November,” Kaplan said.
Increased rand volatility could make it challenging to ease rates at Thursday’s meeting, she said.
These risks have grown as global markets digest the shock attack on Saudi Arabian oil production, which sent oil prices skyward and sparked worry for what it would mean for local fuel prices, as oil is a key import in SA.
NKC Africa Economics economist Elize Kruger said, however, that inflation had remained under control in 2019. Assuming an oil price spike adds R1/litre to the price of fuel in the coming two months, she expects inflation to rise to only 4.3% in 2019 and 5.1% in 2020 — below the Bank's upper limit of 6%. Higher fuel bills will, however, hurt household spending, putting further pressure on economic growth.
Although SA avoided a recession after the economy recovered in the second quarter, growth prospects remain muted. Business confidence, meanwhile, hit a record low reading of 21, according to the most recent RMB/BER business confidence index — levels not seen for 20 years.