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Consumer inflation spikes again to 5.4%


South Africa’s inflation rate rose to a three-month high in September on the back of higher food and energy prices, maintaining the case for the central bank to keep borrowing costs higher for longer.

Annual inflation accelerated to 5.4% from 4.8% in August, Pretoria-based Statistics South Africa said Wednesday in a statement on its website. That matched the median of 12 economists’ estimates in a Bloomberg survey.



Core inflation, which excludes food and energy costs, slowed to 4.5% last month from 4.8% in August and compared with a 4.7% reading expected by economists.

“Rates will stay higher for longer,” said Frank Blackmore, lead economist at KPMG. “The probability of a reprieve in the interest rate in the November meeting will depend largely on October’s inflation number.”

The South African Reserve Bank, which held interest rates steady at 8.25% at its last policy meeting in September, aims to anchor inflation around the midpoint of its 3% to 6% target range. Its next rate decision will be announced on Nov. 23, one day after the October inflation data are released.

Read: One more Sarb hike on the cards – Bank of America

Investors slightly softened their bets that the central bank will resume its interest-rate hiking cycle next month as they digested the new data.

Forward-rate agreements starting in two months’ time — used to speculate on borrowing costs — show traders are pricing in a 60% chance of a quarter-point increase at the central bank’s upcoming meeting, compared with 76% before the release. The South African currency was little changed around R18.75 to the dollar.

What Bloomberg Economics Says …

“Energy prices were stronger in September than we expected. Inflation came in higher than our 5.2% forecast, which underestimated the increase in fuel prices. This strong pick up in inflation, from 4.8% in August implies a further rate hike is not off the table.” — Yvonne Mhango, Africa economist

The biggest contributors to inflation in September were food and non-alcoholic beverage costs, which jumped 8.1% year-on-year, and housing and utility prices, which climbed 5.5%. Miscellaneous goods and services rose 6%, while transport prices increased 4.2%.

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Electricity prices, which are the second-largest element of the housing and utilities sub-component of the consumer price index, rose 15.1% from a year ago, but were unchanged month-on-month.

Hawkish lean

The central bank in its six-monthly Monetary Policy Review released on Tuesday said that while inflation has returned to within its target range, it had still not stabilised around the 4.5% midpoint in a convincingly sustainable manner.

“A number of global and domestic risks to the inflation outlook remain elevated and few appear likely to unwind in the near future,” the Reserve Bank said.

Policymakers will continue to monitor incoming data and act appropriately to steer inflation back to the midpoint over the medium term, it said.

Risks to its outlook include El Niño-induced weather conditions, grain export restrictions by major producers such as India, and persistent power cuts that could drive food prices higher, it said.

Severe drought conditions caused by El Niño could add 3 to 8 percentage points to headline inflation, the central bank’s models show.

The Reserve Bank has held rates steady at 8.25% at its last two meetings after tightening policy by a cumulative 475 basis points since November 2021.

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