By Koketso Mano
Headline inflation slowed to 2.8% y/y in October, from 3.8% in September. The print was below our and the market expectation of 3.0%. Slight headline deflation was recorded on a month-on-month basis, as minor contributions from food and core items were outweighed by fuel deflation.
Core inflation also softened to 3.9% y/y from 4.1% previously. Monthly pressure was marginal, at 0.2%. Services inflation was flat at 4.4% y/y while core goods inflation eased to 3.0% from 3.7% in September.
Average fuel prices fell by 5.3% m/m and 19.1% when compared to September 2023.
Food and non-alcoholic beverages (NAB) inflation was 3.6% y/y, down from 4.7% in the previous month. Monthly pressure of 0.4% was from vegetables, NAB, meat, as well as fruit.
Four out of the seven categories recorded a slide in annual volumes. Hardware retailers recorded the largest decline, at -6.0% y/y, detracting 0.5ppts to the headline number. This was followed by clothing and footwear retailers, with -5.5%, and -0.9ppts. Food and beverage outlets as well as other retailers also saw diminished volume sales, at -2.7% and -1.8%, respectively. The general dealer category was largely responsible for the overall expansion, at 4.5% y/y, contributing 2.1ppts to the headline number, supported by household furniture sales with a robust 14.6% growth, adding a further 0.6ppts.
Outlook
This should be the trough for headline inflation. We see inflation at 3.2% in November and project a steady lift in inflation going into 2025, but not surpassing 4.0%. This trend is supported by positive base effects and contained underlying inflation.
At the September Monetary Policy Committee (MPC) meeting, the South African Reserve Bank (SARB) projected inflation to average 4.0% next year and 4.4% in 2026. This benign trend in inflation, alongside recent interest rate cuts in advanced economies, is supportive of a continued local cutting cycle. We anticipate a 25bps cut at the November meeting, and at each subsequent meeting until May 2025. However, the outlook is not without challenges. The Fed has signalled that a slower-paced interest rate cutting cycle is on the cards, which will place pressure on emerging market assets. Furthermore, trade restrictions and looser fiscal policy remain pertinent risks to the outlook on global inflation and financial conditions. These factors should keep the MPC cautious.The November inflation print is scheduled for release on 11 December. There are no major periodical surveys in November.
