By Koketso Mano
Headline inflation lifted to 5.9% in October, from 5.4% in September, continuing an upward trend that is expected to be brief. The print was higher than ours and the consensus prediction of 5.6%. Monthly headline inflation was 0.9%, driven once again by fuel, contributing over 0.3ppt. Core items as well as food and non-alcoholic beverages (NAB) added nearly 0.3ppt each.
Core inflation was 0.4% m/m and 4.4% y/y, down from 4.5% previously. Driving the monthly pressure was restaurants and hotels as well as vehicles, which contributed 0.1ppt each. The rest of the pressure is from smaller contributions by other core items. The divergence between headline and core movements once again highlights the resurgence in volatile items.
Average fuel prices lifted by 6.5% m/m and prices were up by 11.2% compared to last year.
Food and NAB inflation tilted further upwards to 8.7% y/y, from 8.1% previously, and prices lifted by 1.5 m/m. Over 70% of the monthly pressure is explained by vegetables, dairy and eggs, as well as meat.
Outlook
We anticipate that headline inflation will slow to 5.5% in November. Monthly pressure on headline inflation should slow materially following the nearly R1.50 per litre average cut to fuel prices. Mitigating the fall in fuel inflation will be the unfolding impact of the avian flu outbreak that should keep food inflation sticky. More broadly, still-elevated global inflation coupled with an undervalued rand should maintain pressure from the ports. These pressures suggest a gradual disinflation trend in the near-term. Over the medium term, we foresee headline inflation falling more firmly towards target.
The gradual deceleration in headline inflation hides the weakness in consumer demand, which has more meaningfully restricted the lift in core inflation. In addition, credit defaults are on the rise as consumer headwinds abound. A weaker consumer and slow demand- driven inflation, alongside unchanged rates in advanced economies suggest that there is a limited push for higher local nominal rates. Ours and the consensus expectation is for the MPC to hold rates at the upcoming meeting, and we maintain our call for rate cuts to feature from the middle of 2024. Ultimately, high rates for long remains a key theme, and important to SA containing inflation expectations and avoiding serious funding vulnerabilities.
The November inflation print is scheduled for release on 13 December. There are no major periodical surveys conducted in November.
