PPS: CPI for September 2024

Annual consumer price inflation was 3.8% in September 2024, down from 4.4% in August 2024. The annual inflation rate of goods was 3.3%, down from 4.4% in August 2024; and 4.4% for services, down from 4.5% in August 2024.

Notably, the annual inflation rate falls below 4.0% for the first time in more than three years in September, making the case for borrowing costs to be lowered again next month.

Housing and Utilities, which account for a quarter of the CPI basket was the largest contributor to inflation, adding 1.1%. Among its underlying components, the largest price increase came from electricity, which has gone up 11.5% over the past year. The Miscellaneous Goods and Services category (14.8% of the CPI basket), remains a significant contributor to current inflation, contributing 1.0% this period. Food which makes up 17.4% of the CPI basket, contributed 0.9% to annual CPI inflation, but encouragingly price pressures having eased substantially. Transport which makes up 14.4% of the CPI basket, contributed -0.2% to annual CPI inflation. Fuel which makes up 4.8%, contributed -0.4% to annual CPI inflation.

Softer oil prices, moderating food prices and a stronger rand have helped ease price pressures. The currency has gained almost 5% since a business-friendly governing alliance took power of in June. Looking ahead, the current rate of inflation should offer the SARB some peace of mind. While most economists expect the deceleration in inflation will encourage the SARB’s monetary policy committee to cut rates by a quarter point for a successive meeting in November, some see scope for a larger reduction.

However, South Africa’s rapid switch to become a net importer of fuel creates supply risks requiring infrastructure to store and transport fuel. The SARB may also be cautious about the potential impact of conflicts in the Middle East. While disinflation is on track and policymakers forecast inflation will hold in the bottom half of their 3.0%-6.0% target band over the coming quarters, uncertainty remains. It is cautioned that risks to the inflation outlook remain, including the uncertainty over how far and how fast global financial conditions will ease as other central banks cut borrowing costs.