South African inflation increased sharply due to food and fuel prices

South African inflation increased sharply due to food and fuel prices

Inflation in South Africa rose sharply in September but remained within the central bank’s target range, leading analysts to expect that interest rates will be unchanged in the month next. Statistics South Africa said headline consumer inflation rose to 5.4% year-on-year in September, up from 4.8% in August (ZACPIY=ECI), with the food sector, Fuel and transportation are the main causes.

Core inflation (ZACPYY=ECI), which excludes food and fuel costs, fell to 4.5% year-on-year in September from 4.8% in August. The South African Reserve Bank (SARB) targets inflation between 3% and 6% and prefers to set inflation at the midpoint of this range.

Economist Elize Kruger said inflation will likely stay above 5% until around the third quarter of 2024, but current interest rates are restrained enough. “The SARB will keep interest rates unchanged at this level for an extended period, before an initial rate reduction is considered,” she said.

Kruger also warned that the impact of the domestic poultry crisis on food inflation will only be seen in the October numbers. South Africa is currently facing its worst outbreak of bird flu, affecting egg and chicken supplies. Millions of chickens have been culled, while many food retailers limit the number of eggs buyers can buy.

The SARB warned on Tuesday that inflation risks have heightened in recent months, increasing uncertainty about the exact path of inflation. Investec economist Annabel Bishop said inflation was expected to average 5.8% this year and 4.6% next year, while the rand and fuel prices posed risks to Prospects.

The central bank kept interest rates unchanged at two previous policy meetings after 10 consecutive increases to curb inflation. “The interest rate cycle in South Africa is unlikely to rise any further,” Bishop said.