Statistics South Africa (Stats SA) reported on October 23 that consumer price inflation declined from 4,3% year-on-year (y-o-y) in August to 4.1% y-o-y in September.
PwC unpacks the numbers:
This was slightly lower than economists’ median expectation of 4.2% y-o-y and continued the 2019 trend of inflation readings circling the middle of the central bank’s 3%-6% target range. The South African Reserve Bank (SARB) Monetary Policy Committee (MPC) meets again in November to consider inflation developments and the impact that this could have on future interest rates.
The major drivers behind the decline in headline inflation during September were housing, utilities and transport. Inflation on actual rentals for housing declined from 4% y-o-y in August to 3,3% y-o-y in September, with owners’ equivalent rent easing from 3,3% y-o-y to 2,6% y-o-y. Rental incomes have come under pressure within the country’s strained economic environment. Landlords have seen a decline in rental demand in the wake of a significant increase in mortgage approvals. In addition, there has been a shrinking national pool of quality tenants.
Public transport inflation dropped from 9.0% y-o-y in August to just 3.0% y-o-y in September. This was largely due to base effects caused by a 5,5% month-on-month (m-o-m) increase in public transport costs in September of last year, resulting in a high base number of the latest inflation calculation. Nonetheless, a slowdown in public transport inflation will be good news to the many South Africans that have started walking to work due to the high cost of transport. Road and rail passenger journeys declined by 18,8% y-o-y in August as commuters cut down on transport spending.
At its most recent meeting during September, the central bank’s MPC decided unanimously to keep interest rates unchanged. Policymakers also reported that the SARB’s internal modelling indicated no scope for changes to the repo rate anytime soon.
The latest inflation number sticks to the central bank’s vision of inflation near the middle of the (3%-6%) target range. However, as is always the case, the MPC also warned in September that future monetary policy decisions will be highly data-dependent, and sensitive to the SARB’s assessment of the balance of risks to the inflation and economic growth outlook.