August inflation higher than expected due to bread, pap price shocks

South Africa's consumer inflation rose by 4.3% in August, compared to 4% in July.

This is slightly higher than expected: economists polled by Bloomberg had predicted an increase of 4.2%.

Annual food inflation reached its highest level in 18 months, registering 3.8% in August, Statistics SA reported. This was mostly due to a 8.6% increase in bread and cereal prices - the highest annual inflation reading for bread and cereals since February 2017, when the rate was 12.8%.

Mielie meal prices have seen a sharp hike. Super maize was almost 18% more expensive in August compared with the same month last year. Special maize prices jumped by 27.5% over the same period.

Oil-based food items – such as cooking oil and margarine, which are derived mainly from sunflowers – also saw a sharp jump. While annual inflation for oils and fats is currently at 4.4%, monthly inflation came in at 2.2% in August, the biggest monthly jump since January 2016. 

Fish prices also on an upward trend. Annual fish inflation was 7.5% in August, with tinned fish (excluding tuna) 8.7% more expensive than it was a year ago.


While inflation has remained at or below the 4.5% midpoint of the central bank’s target band every month since December, the surge in oil prices following a drone strike on Saudi Arabian oil facilities could add upward pressure on price growth if it leads to an increase in gasoline and diesel cost. Fuel makes up 4.6% of South Africa’s inflation basket.

August’s higher-than-expected inflation number is expected to give the SA Reserve Bank’s monetary policy committee pause for thought as they started their deliberations on interest rates on Wednesday. They committee will make its announcement on Thursday afternoon.

The chances of a 25 basis point cut fell to 50% on Wednesday from 72% on September 13 before the attack, according to Bloomberg calculations. All but four of the 18 economists in a Bloomberg survey forecast the central bank will maintain the rate at 6.5%.

The MPC will likely on Thursday also update its oil-price assumptions and inflation forecast for the year, which are currently at $67 per barrel and 4.4%.

Rand reaction 

The local currency had a "fairly muted reaction" to the consumer inflation data, said Lukman Otunuga, senior research analyst at FXTM.  

"Investors seem more concerned with the volatility in the oil markets and how this will impact the SARB interest rate decision," he said in a note to clinets. 

At 11:15, the rand was trading at 14.63 to the dollar, up 0.5% on the day. 

This article includes reporting by Prinesha Naidoo of Bloomberg. 

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