By Koketso Mano
Consumer inflation edged higher in August
Headline inflation ticked up to 4.8% in August, from 4.7% in July. The print was in line with ours and the consensus prediction. Monthly headline inflation was 0.3% and contributing to this pressure were core items (0.2ppt) as well as fuel (0.1ppt).
Core inflation was 0.3% m/m and 4.8% y/y, up from 4.7% in July. Given the August survey of municipal tariff increases, the major contributor, explaining nearly half of the monthly pressure, was water and other services. The rest of the pressure is explained by smaller contributions by other core items.
Average fuel prices lifted by 2.2% between July and August, but fuel prices were 11.7% lower than in August 2022.
The outstanding municipal electricity tariff increases averaged 0.8% m/m, lifting electricity inflation to 15.1% y/y. These additional municipal tariff hikes resulted in municipal inflation rising from 10.3% in July to 11.7% in August.
Food and non-alcoholic beverages (NAB) inflation softened further to 8.0% y/y, down from 9.9% previously, and there was no monthly price pressure. While items such as vegetables, NAB, and sugar had positive monthly pressure, this was counteracted by monthly meat deflation.
Outlook
Adjusting our forecast with this outcome suggests that headline inflation could lift to 5.5% in September. This is as monthly inflation lifts, primarily supported by higher fuel prices. A weak rand and higher international oil prices resulted in a sizeable fuel price hike in September, which should shift fuel prices back into inflationary territory after recording annual deflation in the past three months. Furthermore, the undervalued rand should continue to exert upward pressure to broader imported inflation. Nevertheless, we anticipate that headline inflation will average around 6.0% this year, lower than 6.9% last year, having benefitted from earlier positive base effects as well as constrained consumer spending that should limit the extent of input cost passthrough.
Slowing inflation has supported softer inflation expectations. This, along with signs that restrictive monetary policy is gradually limiting credit activity, should provide some comfort to the Monetary Policy Committee (MPC). In line with this, we anticipate that the MPC will keep interest rates unchanged at the upcoming meeting. However, a resurgence in global energy inflation will be concerning to central banks, maintaining upward risks to interest rates. Furthermore, rising local funding vulnerabilities and the weak rand will keep the MPC trigger ready. For now, these risks suggest that local rates should remain restrictive going into 2024.
The September inflation print is scheduled for release on 18 October. Major periodical surveys conducted in September include housing (16.49% weight in CPI), domestic worker wages (2.53%), and transport (1.88%).
