By Koketso Mano
Headline inflation was 3.3% y/y in August, down from 3.5% in July. The print was below our expectation of 3.5%. Monthly pressure was -0.1%, dictated by fuel as well as food and non-alcoholic beverages (NAB) deflation.
Core inflation was 0.1% m/m and 3.1% y/y, up from 3.0% previously. Services inflation recorded 0% m/m, and 3.6% y/y. Core goods inflation was 0.3% m/m and 1.9% y/y.
Average fuel prices fell by 0.8% m/m and were 5.7% lower than at the same time last year.
Food and NAB inflation recorded 5.2% y/y, down from 5.7% previously. Monthly deflation of 0.1% reflected meat and NAB inflation that was mitigated by cereals and vegetables deflation.
Outlook
Considering today's data, we see headline inflation lifting slightly to 0.2% m/m and 3.4% y/y in September. There will be some core inflation pressures, as new housing inflation data becomes available. This is while average fuel prices continue to detract from monthly headline pressures. Fading positive base effects should support inflation, almost touching 4% in the last quarter of this year. This should complicate expectations of further monetary policy easing this year.
The 3Q25 inflation expectations survey reflected further slowing over the various time horizons. Importantly, over the two-year monetary policy implementation horizon, expectations have softened from 4.5% to 4.2%. Meanwhile, longer-term expectations are at their lowest since 2011, recording 4.2% from 4.4% previously. Nevertheless, this slowing was driven by analyst expectations, which trend towards the Monetary Policy Committee's (MPC) 3% objective, while business and labour unions remain anchored above 4%. This highlights some rigidity in shifting towards the new de facto target by price setters. Furthermore, any hesitance by government to officially support the lower target may affect the credibility and efficacy of the adjustment process. Fortunately, oil prices are expected to remain soft while other import costs should be contained by the influence of cheaper products from the East as well as a resilient rand. This will assist with managing headline inflation, while restrictive monetary policy keeps core inflation muted.
In line with this, interest rates should remain unchanged for the remainder of this year but a faster adjustment in pricing behaviour could support the MPC reducing rates quicker.
The September inflation print is scheduled for release on 22 October. Major periodical surveys conducted in September include housing (15.53% weight in CPI), passenger transport services (2.51%) as well as domestic services and sectional title levies (2.01%).
