Inflation cools to below 4% for the first time since 2021, raises hope of rate cut

Stats SA announced annual consumer price inflation (CPI) declined to 3.8% in September, mainly driven by transport costs as the rand continues to strengthen and fuel prices continue to drop.

Annual CPI decreased to 4.4% in August. This paved the way in September for the South African Reserve Bank’s (SARB) monetary policy committee to cut the repo rate for the first time since November 2021 by 25 basis points to 8%.

“Annual CPI was 3.8% in September 2024, down from 4.4% in August 2024. CPI increased by 0.1% month-on-month in September 2024,” the Stats SA statistical report released on Wednesday said.

The report said the main positive contributors to the latest annual inflation rate were:

• housing and utilities at 4.8%;
• miscellaneous goods and services at 6.9%;
• food and nonalcoholic beverages at 4.7%; and
• alcoholic beverages and tobacco at 4.7%.

Housing and utilities contributed 1.1 percentage points, miscellaneous goods and services contributed one percentage point, food and nonalcoholic beverages, contributed 0.9 of a percentage point and alcoholic beverages and tobacco contributed 0.3 of a percentage point.

“Transport was the only negative contributor [at] -1.1% and contributing -0.2 of a percentage point. In September 2024, the annual inflation rate of goods was 3.3%, down from 4.4% in August 2024, and services was 4.4%, down from 4.5% in August 2024.”

KPMG lead economist Frank Blackmore said reduction would allow the SARB to reduce rates further at their November meeting, potentially by 50bps, though a 25bps remains more likely, continuing their steady reduction cycle into 2025 to a level of about 7% (prime at 10.5%).

“Reductions will continue to put money in pockets of consumers and give business an incentive to increase the rate of investment, resulting in higher economic growth and employment creation,” he said.

Addressing a lecture at the University of Stellenbosch last week, SARB governor Lesetja Kganyago said high administered price inflation negatively affects all South Africans, 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 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, faster.

Business Times