Weekly economic wrap: inflation lowest since March 2021

It was a quiet data week on the economic front, with consumer inflation for September the most important announcement of the week. The rand did not show any radical movement this week and everyone is now waiting for the Mid-Term Budget Policy Statement from the minister of finance on Wednesday afternoon.

Lisette IJssel de Schepper, chief economist at the Bureau for Economic Research (BER), says in the end, the rand exchange rate drifted between R17.50 and R17.85/$ for most of the week, with little change by the end of Thursday against the dollar and a touch stronger to the euro and pound relative to last week.

Isaac Matshego and Busisiwe Nkonki, economists at the Nedbank Group Economic Unit, say the rand was marginally weaker this week as it continued to hover around R17.60, with the main drag coming from US dollar strength as investors await the Federal Reserve’s next policy decision.

“Adding to the pressure is the ongoing uncertainty about the effect of China’s economic stimulus after growth fell further in the third quarter. This [Thursday] morning, the local currency was trading at R17.68/$. The rand has been resilient and will probably remain stable in the short term.”

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Good news for inflation in September

Annual headline CPI inflation moderated to 3.8% in September, the lowest since March 2021, from 4.4% in August, according to Statistics SA.

Pabalelo Mosoma, economist at the BER, says it is notable that inflation dipped below 4% for the first time in three years, supporting the South African Reserve Bank (Sarb) statement in its October monetary policy review that the disinflation process is on track.

“The in-line-with-expectations outcome enforces our view that the Sarb is likely to cut the repo rate by another 25 basis points at the next policy meeting in November.”

Matshego and Nkonki say they expect inflation to remain contained in the coming months. “Most downward pressure will still emanate from lower transport costs resulting from low fuel prices. The price of Brent crude jumped briefly in the first week of October, reaching $80 per barrel after Iran fired ballistic missiles at Israel.

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Oil price increasing not a big concern

“However, it has since retreated to around $75 per barrel as retaliation concerns subsided somewhat due to subdued global demand and ample supply. The upside on inflation will mainly emanate from food as the impact of drier weather conditions earlier in the year filters through certain food items and due to elevated domestic operating costs.

“We forecast inflation to end the year at around 4% and an average of 4.6% in 2024. The risks to our forecast are tilted to the upside due to the price of Brent crude oil, which remains vulnerable to tensions in the Middle East. The biggest concern is that Israel could retaliate against Iran, which could potentially disrupt the oil supply channels around that area and result in another surge in the oil price.”

Mamello Matikinca-Ngwenya, Siphamandla Mkhwanazi, Thanda Sithole and Koketso Mano, economists at FNB, say they expect inflation to bottom out around 3% in October and stay below 4% through the first half of 2025, as weak domestic demand keeps core inflation stable and continued declines in fuel prices support lower transport costs.