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Frederick Mitchell, Chief Economist | Aluma Capital (Pty) Ltd
Frederick Mitchell
September 18, 2024

Consumer Inflation slowing down further

Inflation eased from 4.6% in July to 4.4% in August 2024, aligning with market expectations. Month-on-month growth was minimal at just 0.1%. The rise in inflation for August was driven by:

  • Housing and utilities (including electricity and other administered prices), which increased by 4.8%, contributing 1.1 percentage points to inflation.
  • Miscellaneous goods and services, which rose 7.0%, adding 1.0 percentage point.
  • Food and non-alcoholic beverages, which increased by 4.7% year-on-year, contributing another 0.9 percentage points.
  • Transport services, which include fuel and maintenance costs, rising 2.8% and adding 0.4 percentage points to the overall inflation rate.

These increases were not unexpected, as these categories have significantly eroded consumer purchasing power since inflation began rising sharply in 2022. The ongoing inflationary pressures raise affordability concerns, as household income has not kept pace with rising prices, leading many families to take on more debt to maintain their standard of living. This higher indebtedness makes consumers even more vulnerable to interest rate hikes while they are already struggling with cost-of-living increases along with elevated debt payments.

It’s important to note that the price increases are not driven by rising domestic demand but rather by external factors, including electricity supply constraints, the costs associated with alternative power generation, and escalations in import prices, which are passed on to consumers through the market value chain.

While inflation continues to rise, it is doing so at a slower pace. Contributing factors to this moderation include:

  • An appreciation and increased stability of the Rand/Dollar exchange rate since the May 2024 elections, as investors and market participants have shown greater optimism following the formation of the Government of National Unity (GNU) and early policy signals.
  • Reduced power supply constraints, which have improved overall economic activity in South Africa during the second quarter of 2024.

Given the moderating inflation, better-than-expected economic growth, improved electricity supply, and enhanced market sentiment, the Reserve Bank is likely to lower interest rates in September 2024. This reduction may help boost demand slightly and contribute to stronger economic growth in South Africa than initially anticipated.

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