Consumer inflation, as measured by the change in the consumer price index (CPI), accelerated to its highest rate in seven months in October, driven by rising food prices, data from Stats SA showed on Wednesday.

CPI rose to 3.3% year on year in October, from 3% in September, higher than the 3.1% forecast by economists, according to macroeconomics website Trading Economics. In spite of this, economists said this was unlikely to be of much concern to the Reserve Bank, and SA may even see further interest-rate cuts in coming months as the economy battles to escape recession.

Food and nonalcoholic beverages increased by 5.4% year on year, and contributed 0.9 of a percentage point to the CPI figure, offsetting the effects of lower fuel prices, Stats SA.

CPI has remained within the SA Reserve Bank’s 3%-6% target band since July, and below the midpoint target of 4.5% since March.

Subdued core price pressures and a weak economic recovery mean that monetary conditions will be kept loose until at least the end of 2022, said Capital Economics Africa economist Virág Fórizs in a note.

Food inflation probably will continue to pick up and combined with rising fuel price inflation will continue to put upward pressure on the headline rate over the next six months, said Fórizs, adding, however, that that was unlikely to concern the Reserve Bank, and further easing could not be ruled out.

Inflation looks set to remain at about 3% for the remainder of 2020, and below the Reserve Bank's 4.5% target for at least a year, said Nedbank Group Economic unit economists Busisiwe Radebe and Nicky Weimar in a note.

“This benign inflation outlook, together with a poor growth outlook, would ordinarily mean more rate easing, but this is unlikely to be the case as the Reserve Bank has probably stimulated the economy enough with the series of rate cuts earlier this year,” Nedbank said. Interest rates are likely to remain unchanged for much of 2021.

Given that food accounts for a higher proportion of the budget of lower-income households, the effect there will be more pronounced, said Reza Hendrickse, portfolio manager at PPS Investments in a note.

A lower oil price and stronger rand in recent months have contributed to lower inflation, but weak economic growth has also kept a lid on inflationary pressures, said Hendrikse.

The median estimate of 15 economists surveyed by Bloomberg had been for a 3% increase.

Update: November 25 2020
This article has been updated with additional information


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