Consumer inflation grew slower than expected in November, raising optimism that the Reserve Bank could step back from hiking interest rates aggressively as soon as the next monetary policy committee meeting in January next year.
Headline consumer inflation eased to 7.4% year on year in November, from 7.6% in October, Stats SA data showed on Thursday.
The Bloomberg median estimate was for a rise of 7.5%.
While inflation has moderated since peaking at a 13-year high of 7.8% in July, it is still well above the upper limit of the central bank’s 3%-6% target band.
The data will “provide room for the Reserve Bank to ease off the monetary brakes, but it will be some time before it will feel it has tamed the inflation monster,” said Jason Tuvey, senior emerging-market economist at London-based Capital Economics. “We forecast a 50 basis point [bps] rate hike to 7.5% in January and [an additional] 50 bps tightening beyond that.”
The Bank hiked its policy rate by a cumulative 325 bps to 7% in 2022, cementing its credentials as a fighter of inflation, which it says undermines the mainstay function of the rand as a store of value and puts pressure on the finances of debt-laden consumers and businesses.
Retreating international oil prices are a silver lining in the outlook for inflation. Brent crude stood at $82 a barrel, near its lowest level in a year.
Inflation in developed markets appears to be levelling off, though it is still way below targeted levels. The moderation could slow down the pace of rate increases, helping to take pressure off the local Bank.
The rand, one of the key variables in the inflation equation, weakened considerably against the dollar earlier in the year before recouping ground as the dollar’s strength abated amid signs of easing inflation in the US. The rand stood at R17.17/$ late on Wednesday versus R18.30/$ earlier in the year.
“We expect consumer inflation to continue trending downwards in the coming months, helped mainly by the moderation in food and fuel prices,” Nedbank economists said in a note.
“Global food inflation has eased significantly over the past few months, and we expect the lagged effect to start filtering through to the local economy, while a better summer harvest will contain local prices.”
In November core inflation, which excludes volatile items such as food and energy, remained at 5%. It increased by 0.3 percentage points to reach 5% in October, its highest level since February 2017.
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