Media commentary: CPI for September 2023

Consumer price inflation increased by 5.4% year-on-year in September 2023, higher than the 4.8% year-on-year print in August, but the fourth consecutive month that inflation has been within the 3%-6% target band.

Inflation now averages 6.0% for the year to date and falls within the target band for the first time. Month-on-month inflation increased by 0.6%, which was higher than the 0.3% month-on-month increase in August.

Food and non-alcoholic beverages (1.4%), housing and utilities (1.3%), and miscellaneous goods and services (0.9%) were the largest contributors to inflation, with all three contributions being unchanged from last month. The large change in inflation came from the contribution from transport which moved from being a 0.1% detractor to a 0.6% contributor to year-on-year inflation. There were no inflation groups that detracted from inflation for September. On a subsector level the recent increase in electricity prices was evident with the 15.1% increase in electricity and other fuels over 12 months, the same increase as last month. Food prices increased by 8.0% over the year, while Fuel saw a 7.6% increase for the month which had an impact on transport.

In the most recent Monetary Policy Committee (MPC) meeting the South African Reserve Bank Governor highlighted that three MPC members opted for unchanged interest rates while two members opted for a 25-basis point increase in interest rates. This occurred when the latest inflation prints were 4.7% and 4.8%. The September print of 5.4% makes the likelihood of a rate increase even more likely, even though inflation is within the target band, as the inflation trajectory appears to be increasing. The PPS funds have maintained an overweight exposure to cash for most of the year and have continued to benefit from increasing interest rates and may continue to be the best-performing local asset class if the hiking cycle does continue.