STATISTICS SA announced yesterday that headline consumer inflation in South Africa fell to 4.4% year-on-year in August from 4.6% in July, with this being the third consecutive month of inflation falling.
In month-on-month terms inflation was at 0.1% in August compared to 0.4% a month before.
“This is the lowest inflation print since April 2021 when the rate was also 4.4%. Lower annual rates were recorded for several product groups, most notably transport, housing, and restaurants and hotels. In contrast, inflation for food and non-alcoholic beverages and alcoholic beverages & tobacco edged higher in August,” Stats SA said.
The data released will be music to the South African Reserve Bank’s Monetary Policy Committee, giving them leeway to finally decide on a reduction of the repurchase rate later today.
This is the first time since April 2021 that inflation has come in below the SARB’s 4.5% target.
Reza Hendrickse, portfolio manager at PPS Investments, said, “Housing and Utilities, which account for a quarter of the CPI basket was the largest contributor to inflation, adding 1.1%. Among its underlying components, the largest price increase came from electricity, which has gone up 11.5% over the past year.
“The Miscellaneous Goods and Services category (14.8% of the CPI basket), remains a significant contributor to current inflation, contributing 1.0% this period. Food and Transport, which together make up 31.5% of the CPI basket, contributed a combined 1.3% to annual CPI inflation, but encouragingly price pressures in both categories having eased substantially.”
Hendrickse said that looking ahead, the current rate of inflation should offer the SARB some peace of mind.
“Although they are still concerned that inflation expectations remain elevated, there is now less argument for maintaining above-neutral rates. The market expects both the US Fed and the SARB to cut rates this month, joining the growing cohort of global central banks that have already eased policy this year.
“The debate now revolves around the pace and magnitude of future rate cuts, which ultimately will help support economic growth going forward,” Hendrickse added.
Further good news for consumers was that fuel prices continued to trend downward, declining for a third consecutive month.
The fuel index dipped by 0,5% month-on-month, slowing the annual rate to 1,8%. Motorists using inland 95-octane petrol paid 15c less per litre in August (R23.11) compared with July (R23.26).
“Diesel followed a similar trend, with motorists enjoying a fourth consecutive cut. The average price for a litre of diesel was R23.23 in August compared with R23.35 the month before. Transport’s influence on overall inflation has waned since mid-2022, when it was the biggest factor behind the rise in the cost of living.
“It accounted for 44% of overall inflation in July that year. Fast forward to August 2024, transport accounted for 9%, placing it behind other major contributors such as housing and utilities and food and NAB. In August, housing and utilities accounted for a quarter of the total inflation rate,” Stats SA said.
Meanwhile, Investec’s Annabel Bishop said that October was currently in line for a further petrol price drop, of about R1.25/litre, mainly on lower international oil prices.
“CPI inflation at 4.4% year-on-year, and expected to average similarly over 2025, will aid South Africa’s MPC decision to cut the repo rate by 25 basis points, as widely expected,” Bishop said.
Frank Blackmore, Lead Economist at KPMG South Africa, said that inflation came in marginally below the target rate of 4.5% and that gives the green light for the Reserve Bank to start its interest rate reduction cycle.
“Consequently, we see for this month the 25-basis point reduction which could even be up to 50 basis points reduction in November, leaving the prime rate around 11%, a lot lower than where we started this year, and that reduction will increase and continue into 2025 from the sustainable level of repo and interest rates is reached,” Blackmore said.