Price pressures’ ease in US could be good news for SA

Economists say that all data pointed to a sharp rise in inflation in the US last month, but there is hope yet as it seems that there may just be an easing of price pressures.

US inflation rates is reported to have risen by around 0.6% in October, compared to 0.4% in September. October This is encouraging compared to last year, when it rose by 7.7%.

The Federal Reserve is making progress in the fight to restore price stability after launching an aggressive tightening campaign.

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Gains in the all-items index were motivated by a jump in energy, food, and lodging prices. These expenditure categories rose by 1.8%, 0.6% and 0.8% respectively. The increases were somewhat offset by drops in used vehicles and medical care costs, which fell 2.4% and 0.6%, respectively, though.

SA Economist weighs in

Shireen Darmalingam, economist for SA Economic Research for Standard Bank, commented: “US CPI came in better than expected at 7.7% year-on-year in October from 8.2% year-on-year in September. On a month-on-month basis, CPI was up by 0.4% in October following a 0.4% increase in September. Core CPI, which excludes energy and food prices, also moderated in October to 6.3% year-on-year from 6.6% year-on-year in September; on a month-on-month basis core CPI was up by 0.3% in October from 0.3% in September.

“The Federal Reserve views the core rate as a more accurate measure of broad price pressures and future inflation trends. Despite the improvement in October, CPI and core CPI remains elevated. The Federal Reserve is thus likely to continue raising rates when it meets on 13 and14 December, albeit now possibly in smaller increments.

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“We expect SA CPI to have moved sideways in October and is expected to come in at 7.5% year-on-year, the same as in September. This is from an estimated peak of 7.8% year-on-year in July. While oil prices remain a forecast risk, it is also lower than their recent peak, which moderates a major inflation source. We expect inflation to remain above the upper limit of the 3%-6% target for the remainder of this year, albeit moderating. The spike in food and fuel price pressure should ultimately fade. We see CPI averaging 6.8% in 2022 and moderating to an average of around 5.3% in 2023.”