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October 23, 2024

CPI falling below forecasts

Inflation slowed markedly from 4.4% in August 2024 to 3.8% in September, slowing more aggressively than market expectations of 4.1%. Month-on-month growth was minimal at just 0.1%.

The rise in inflation for September was driven by:

  • Housing and utilities (including electricity and other administered prices), which increased by another 4.8%, contributing 1.1 percentage points to inflation.
  • Miscellaneous goods and services, which rose 6.9%, adding 1.0 percentage point.
  • Food and non-alcoholic beverages, which increased by 4.7% year-on-year, contributing another 0.9 percentage points.
  • Alcoholic beverages and tobacco, which recorded an increase of 4.7% year-on-year, contributing another 0.3 percentage points.

The categories that experienced increases are not surprising, as they primarily contribute to household budgets being in the “red.” These rising costs further erode purchasing power, albeit at a slower rate. Ongoing inflationary pressures heighten affordability concerns, squeezing household incomes and prompting increased reliance on credit to maintain current lifestyles. This elevated credit burden makes already indebted consumers more vulnerable to interest rate hikes and rising product prices.

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

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

  • The ongoing strength of the rand, which has remained around R17.50 against the U.S. dollar, as investor optimism has grown following the formation of the Government of National Unity (GNU) and early policy signals.
  • Reduced power supply constraints, leading to 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 positive market sentiment, the Reserve Bank is likely to lower interest rates further in November 2024. This reduction may slightly boost demand while alleviating pressure on household finances, potentially contributing to stronger economic growth in South Africa than initially anticipated for 2024 and going into 2025.


More Coverage

In September 2024, South Africa’s producer price inflation slowed to a 1.0% annual increase, down from 2.8% in August, with a monthly deflation of 0.3%. Key contributors included rising costs in food, beverage, and intermediate goods, while mining costs fell. Concerns remain over elevated water and electricity prices exceeding the SARB’s target range.
Inflation slowed markedly from 4.4% in August 2024 to 3.8% in September, slowing more aggressively than market expectations of 4.1%. Month-on-month growth was minimal at just 0.1%.
In August 2024, South Africa’s retail sales grew by 3.2% annually, exceeding the expected 1.0% increase. This indicates a positive shift in consumer demand, driven by lower inflation and improved economic sentiment. Growth was primarily led by general dealers, which posted a 4.6% rise, contributing 2.1 percentage points to the overall growth, while hardware retailers saw a decline of 4.5%.
South Africa’s manufacturing production fell by 1.2% annually in August 2024, attributed to declines in motor vehicle and basic iron production. While food and beverages grew by 5.8%, businesses remain cautious, holding large cash reserves. Companies are waiting for the Government of National Unity to clarify industrial policies and implement promised reforms.
Mining South Africa rose by 0.3% in August 2024, led by increases in manganese, PGMs, and chromium ore. However, declines in iron ore and gold production tempered the growth. Mineral sales fell by 9.9% annually, driven by a sharp drop in gold sales. The sector remains crucial for the economy, employing around 457,000 people.
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