CPI unchanged at 4.9%, rand holds firm

The headline CPI (for all urban areas) annual inflation rate in September 2018 was 4.9%, unchanged from August 2018, official data showed on Wednesday.

Statistics SA announced that on average, prices increased by 0.5% between August 2018 and September 2018.

Food and non-alcoholic beverages increased from 0.6 of a percentage point in August 2018 to 0.7 of a percentage point in September. The index increased by 3.9% year-on-year.

Transport decreased from 1.3 percentage points in August 2018 to 1.2 percentage points in September. The index increased by 8.7% y/y.

Housing and utilities contributed 0.2 of a percentage point. The index increased by 0.8% m/m month, mainly because of actual rentals for housing (1.4%) and owners’ equivalent rent (1.2%).

In September the CPI for goods increased by 4.8% y/y (down from 5.0% in August), and the CPI for services increased by 5.2% y/y (up from 5.0% in August).

Provincial annual inflation rates ranged from 3.9% in Limpopo to 5.6% in the Western Cape.

Stats SA pointed out that not all items in the CPI are surveyed every month.

Food inflation

Jason Muscat, senior economic analyst at FNB said September's inflation rate was in line with the bank's and the consensus forecast.

"There was a notable jump in food inflation from 2.9% in August to 3.4% in September, as bread and cereal deflation finally looks to be coming to an end after 14 consecutive negative prints," he said.

"Conversely, meat prices continue to decelerate, slowing from 5.3% y/y in August to 4.7%, offsetting some of the rising price pressures among other items in the food basket."

He said that, while housing rental inflation eased to 4% y/y from 4.2% the previous month, the primary relief came via government’s intervention in the September fuel price increase, which saw transport inflation ease to 8.7% y/y from 9.5% in August.

"Despite petrol price inflation decelerating to 15.2% from 19.2% the prior month, the relief was not felt by those using public transport, where fares rose 7.1% y/y from 3.1%," said Muscat.

"The medium-term inflation outlook remains somewhat cloudy, depending on if or when government tries to recoup some or all of the 25c per litre it lost through the September intervention."

Nevertheless, a recovery among emerging market currencies and a softer oil price on geopolitical concerns should cushion some of the upcoming price pressure, in his view.

"While the current fuel price under-recovery stands at just 1c per litre (for the November increase), October’s inflation print is expected to jump to 5.2% y/y due to the 99c per litre fuel price increase in the month," said Muscat.

"This may well be enough to convince the SA Reserve Bank to raise rates at its meeting next month."

According to the Nedbank Group Economic Unit, inflation is likely to increase in the coming months, impacted by the fuel price and a weaker rand. It does not, however, believe that inflation will breach SARB's 6% upper target range over the next two years, provided that there are no big domestic or international surprises with markedly negative impact on the rand.

"The relatively subdued inflation outlook and the still weak economy will probably convince the MPC to delay hiking rates for as long as possible. We forecast that rates will remain unchanged this year, before rising moderately early in 2019," the unit said.

The rand was trading 0.19% firmer at R14.23/$.

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