Inflation slowed in September for the fourth month running, reaching its lowest level since March 2021 as fuel prices continued to fall, paving the way for another interest rate cut in November.
Annual consumer inflation eased to 3.8% from August’s 4.4%, Stats SA reported on Wednesday.
Old Mutual chief economist Johann Els said that made a 50 basis point (bps) interest rate cut in November more likely. The lower headline rate was driven primarily by transport costs, which fell 1.1% — the first drop in 13 months — after a 2.8% rise the previous month, said Stats SA.
Lower inflation in the transport sector was mainly the result of lower fuel prices, which fell for a fourth successive month.
The average fuel price in August was 9% lower than a year ago, while slower price increases on vehicles further supported deflation.
Food inflation in September remained unchanged from August’s 4.7%.
Meat, bread and cereals, sugar, sweets and desserts, and oils and fats all recorded softer price increases, while fruit, vegetables, cold beverages and fish prices accelerated.
The food and nonalcoholic beverage price index recorded its biggest monthly increase since the beginning of 2024, rising 0.6% from the month before.
Rate cuts
While annual consumer inflation was softer, the September consumer price index (CPI) edged up 0.1% on a monthly basis, matching the increase reported in August.
September’s CPI release also finalises the third-quarter housing rental survey for 2024, with rental rates increasing across the sector, said Stats SA.
“The annual [inflation] rate for actual rentals was 3.3% in the third quarter (up from 3.2% in the second quarter) and 2.9% for imputed rentals (up from 2.8%).
“The rate [of price increases] for flat rentals was 4.1%, for town houses 3.8% and for houses 2.8%,” said Stats SA.
Further increases were reported in the wages of domestic workers, which rose from an annual increase of 3.9% in the second quarter to 4.1% in the following three months.
The better-than-expected inflation data together with a petrol price cut at the start of this month mean that October CPI inflation is likely to be close to 3%, with some downside risk, said Els.
That number will probably inform the Reserve Bank’s monetary policy committee meeting in November — by which time the US Federal Reserve is set to have cut its rate by another 25 bps, he said.
With a relatively stable rand and no underlying price pressures in the economy, Els said the Bank was expected to cut its rate by a further 50 bps.
“In my opinion, the Reserve Bank is behind the curve — they should have started the cutting cycle in July and cut by 50 bps in September,” he told Business Day.
Lower inflation and interest rates along with improved confidence in the economy will create an environment that is very beneficial for consumers, said Els, with the two-pot retirement system providing additional means to repay debt or increase their spending.
While consumer spending growth is a far cry from two decades ago, the situation has turned around substantially from last year and is “certainly far better than what we’ve had recently”, he said.
KPMG lead economist Frank Blackmore said that lower inflation would allow the Bank to reduce rates further at its November meeting, potentially by 50 bps, though a 25 bps cut remains more likely as the Bank continues with a steady reduction cycle into 2025 to a level of about 7% for the benchmark repo rate and prime at 10.5%.
“Reductions will continue to put money in the pockets of consumers and give business an incentive to increase the rate of investment, resulting in higher economic growth and employment creation,” said Blackmore.
Expectations
In a lecture at the University of Stellenbosch last week, Reserve Bank governor Lesetja Kganyago said that high administered price inflation affected all South Africans negatively, regardless of the central bank’s inflation target.
“What we are seeing with administered prices is known as a ‘relative price adjustment’. Essentially, these goods and services are becoming more expensive relative to others. When this increase stems from inefficiencies and the pricing power of monopolies, it is detrimental to the economy and to consumers,” he said.
Kganyago said a higher target created an expectation that all prices would rise faster and the currency would lose its buying power for global commodities, such as energy and food, more quickly.
Update: October 23 2024
This story contains comment from an additional economist.
With Khulekani Magubane
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