By Koketso Mano
Headline inflation softened further to 4.4% y/y in August, falling below the target midpoint of 4.5% and down from 4.6% in July. The print was below our expectation of 4.6%. Monthly headline inflation was marginal at 0.1%, as minor contributions from food and electricity were offset by fuel deflation.
Core inflation also slowed to 4.1% y/y from 4.3% previously. There was no monthly pressure. Services inflation was 4.5%, from 4.7% previously. Core goods inflation fell to 3.2% from 3.6% in July.
With the final scheduled survey of municipal increases surveyed in August, we saw electricity price inflation increasing by 0.2% m/m and 11.5% y/y.
Average fuel prices fell by 0.5% m/m and were up by only 1.8% when compared to August 2023.
Food and non-alcoholic beverages (NAB) inflation lifted slightly to 4.7% y/y from 4.5% in the previous month. Monthly pressure of 0.2% was from vegetables, cereals, as well as dairy and eggs. The positive contributions were countered by meat deflation.
Outlook
Headline inflation could fall below 4.0% in September, as weak domestic demand keeps core inflation contained and falling fuel prices support lower transport costs.
Weak global activity, alongside supply pressures, has supported softer oil prices and this has boded well for petroleum prices. Furthermore, the dollar-rand exchange rate has moved even closer to the estimated fair value of R17.50, supporting lower imported price pressures across the board. With just an update of today’s data, we could see inflation averaging 4.5% this year and falling closer to 4.0% next year.
A potential interest rate cut by the US Fed this evening, weak domestic activity, less pessimism on the policy trajectory in South Africa, and lower market-wide inflation expectations suggests that there is ample space for the SARB to cut interest rates tomorrow. However, the magnitude of the cutting cycle could be complicated by 2H25
inflation dynamics likely becoming less supportive, as base effects and global activity support the prices of commodities, while improving local activity supports services inflation.
The September inflation print is scheduled for release on 23 October. Major periodical surveys conducted in September include housing (16.49% weight in CPI), domestic worker wages (2.53%), and transport (1.88%).
