Consumer inflation unexpectedly slowed in August, largely due to softer-than-anticipated food price pressures — just ahead of the Reserve Bank’s monetary policy committee (MPC) meeting on Thursday.
Stats SA reported on Wednesday the annual consumer price index (CPI) eased to 3.3%, down from 3.5% in July, while prices declined by 0.1% month on month — marking the first monthly decrease since October 2024. Food and non-alcoholic beverages, as well as housing and utilities, were the main drivers of the annual rate.
After accelerating for six consecutive months, food inflation came in at 5.2% year on year, down from 5.7% the previous month, driven by cereal products, fruit and nuts and vegetables.
“In all these products, SA has an abundant harvest, and the benefits of it are starting to show in prices,” Wandile Sihlobo, Agbiz chief economist said.
A key product many are watching is meat, which has remained elevated, although slaughtering has resumed in major feedlots across the country.
“Initially, the panic buying, not necessarily a shortage of product, was the main driver of meat prices,” Sihlobo said.
“The fact that while the supply has improved somewhat, the prices remain elevated illustrates that the consumer demand may be slightly more buoyant and able to contend with the current higher prices, to an extent. There may also be a slight delay in price adjustments at the retail level.”
Month to month, transport costs fell, largely reflecting lower fuel prices, while housing-related costs remained flat. Goods inflation eased to 3.1%, while services inflation was unchanged at 3.6%.
Inflation prints above 3%
Economists broadly expect the Reserve Bank to keep interest rates on hold at Thursday’s meeting.
KPMG lead economist Frank Blackmore said the expectation was reinforced by forecasts of rising inflation in the coming months, driven by base effects.
“For the rest of the year, we expect inflation to be higher than the 3% mark. This [has] resulted in overall inflation of about 3.6% for the year. This is not due only to increases in prices but also to base effects given that last year’s inflation in August [to] December reduced from 4.4% in August all the way down to 2.8% in October and therefore there's a strong base effect that will impact this year's inflation, even if month-on-month price increases are moderate.”
Core inflation (excluding volatile aspects like food, non-alcoholic beverages, fuel and energy prices) remains at 3.1%, near the 3% target “and this does influence the decision to hold rates constant at this meeting,” Blackmore said.
Inflation expectations above 3%
The MPC also places significant weight on inflation expectations when determining the path of interest rates.
According to the third-quarter Inflation Expectations Survey, conducted by the Bureau for Economic Research (BER), the average expectation for headline inflation over the next five years has fallen to 4.2%, from 4.4% in the previous quarter. This marks the lowest five-year forecast on record.
Expectations for near-term inflation (2025 and 2026) also edged down modestly by 0.1 percentage points, averaging 3.8% and 4.2%, respectively.
While these expectations remain above the 3% anchor, the latest reading brings inflation closer to that target.
As a result, “the likelihood of a cut has increased,” said Old Mutual chief economist Johann Els.
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