South Africa’s Inflation Rises Amidst Food and Fuel Prices
Sharp Increase in Inflation Sparks Interest Rate Speculations
In September, inflation in South Africa experienced a significant rise, although it remained within the target range set by the central bank. This surge has led analysts to believe that interest rates will remain unchanged in the coming month.
Factors Contributing to Inflation
According to Statistics South Africa, consumer inflation rose to 5.4% year-on-year in September from 4.8% in August. The food, fuel, and transport sectors played a major role in this increase.
Core Inflation and the Reserve Bank’s Target
Core inflation, which excludes food and fuel costs, decreased to 4.5% year-on-year in September from 4.8% in August. The South African Reserve Bank (SARB) aims to keep inflation between 3% and 6%, favoring a midpoint within this range.
Expert Opinions on Interest Rates
Economist Elize Kruger predicts that headline inflation will likely remain above 5% until the third quarter of 2024. However, she believes that the current interest rates are sufficiently restrictive and expects the SARB to maintain them for an extended period before considering a rate cut.
Poultry Crisis Impact on Inflation
Kruger also warned about the potential impact of the ongoing poultry crisis on food inflation. The outbreak of avian flu in South Africa has severely affected egg and chicken meat supplies, leading to chicken culling and restrictions on egg purchases by retailers.
Risks and Uncertainty
The SARB recently highlighted the strengthening of upside risks to inflation, causing uncertainty regarding its trajectory. Investec economist Annabel Bishop predicts an average inflation rate of 5.8% for this year and 4.6% for the next, with the rand currency and fuel prices posing risks to the outlook.
Interest Rates Outlook
After implementing ten consecutive rate hikes to curb inflation, the central bank has kept rates unchanged in its last two policy meetings. Bishop believes that there will be no further rate hikes in South Africa’s interest rate cycle.
