SA inflation eased in August, declining from a 13-year high in July when the war in Ukraine and pandemic-linked supply shortages sent food and fuel prices surging.
Stats SA reported on Wednesday that annual inflation slid to 7.6% in August from 7.8% in July as lower fuel prices more than cancelled out higher food and electricity costs.
The August reading is slightly higher than the Reuters consensus of 7.5% and still well above the upper limit of the Reserve Bank’s 3%-6% target range.
Stats SA data shows that prices eased mostly for transport and fuels. The cut in petrol prices was the main driver of the slowdown in headline inflation, with the petrol component falling to 43.2% on a yearly basis in August from 56.2% in July.
“The petrol price cut reflected the sharp decline in global oil prices over the month, which more than offset the impact of a weaker rand,” Investec chief economist Annabel Bishop said.
Stats SA data shows that most of the upward pressure on inflation came from a further acceleration in the prices of food and nonalcoholic beverages, which jumped to 11.3% from 9.7%, contributing 1.9 percentage points to the rise in headline inflation.
Oils and fats — which have been inflated by the war-induced disruptions to Ukraine’s exports of sunflower seed — also rose, but at a slower pace than previous months.
Prices increases for vegetables and sugar also accelerated, jumping to 9.3% from 8.3% and 9.2% from 7.5%, respectively, Stats SA said.
Bishop said inflation was likely to start trending downwards, with “September’s CPI inflation reading also expected to be below July’s” as the petrol price declined a further R2.04/l in September after a R1.32/l cut in August.
“October will likely see a smaller cut in the petrol price, with R1.16/litre building , as the rand’s weakness has erased about a third of the potential petrol price decrease so far for next month,” Bishop said.
Stats SA also reported that annual core inflation — which excludes the prices of food, nonalcoholic beverages, fuel and energy — fell to 4.4% in August from a near five-year high of 4.6% a month earlier.
On a monthly basis, consumer prices rose 0.2%, the lowest monthly increases since January.
Bishop said the Reserve Bank would remain concerned about persistently high inflation since a one-month dip doesn’t “make up a trend of disinflation”.
“The monetary policy committee spent 2016 to 2018 pushing inflation down to 4.5% year on year to anchor expectations and will act assertively to achieve this again,” she added.
“The repo rate may rise above 6.5% this year already, as the SARB delivers a 75bps hike tomorrow [Thursday], and possibly a 50bps or another 75bp increase in November — and could even continue raising interest rates into next year.”
FNB economists said the inflation outlook was clouded by several risks, including drought conditions in Europe and China, that could support elevated global food and energy prices and generally volatile oil prices.
“We also remain concerned about second-round effects as well as input and exchange rate pass-through,” they added.
NOTE: September 21 2022
This article has been updated with additional comment from economists
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