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Frederick Mitchell
November 20, 2024

Consumer Inflation

October 2024

Inflation in South Africa fell from 3.8% in September to 2.8% in October 2024, with monthly deflation of 0.1%. Rising prices in housing, food, and services continue to strain household budgets. Positive news includes the US Fed’s rate cut, allowing for potential interest rate reductions by the SARB, which could boost demand and economic growth.

Inflation in South Africa declined from 3.8% in September to 2.8% in October 2024, marking a monthly deflation of 0.1%. The inflation rise in September was primarily driven by:

  • Housing and utilities: up 4.8%, contributing 1.1 percentage points
  • Miscellaneous goods and services: up 6.8%, adding 1.0 percentage point
  • Food and non-alcoholic beverages: up 3.6%, contributing 0.7 percentage points
  • Alcoholic beverages and tobacco: up 4.5%, adding another 0.3 percentage points

Although these categories continue to see price increases, the rate is slowing. However, these rising costs still strain household budgets, eroding the purchasing power of consumers and businesses. Even with slower price growth, affordability remains an issue, leading many households to rely more on credit to maintain their lifestyles. This reliance heightens vulnerability to interest rate hikes and rising product prices among already indebted consumers.

It’s important to note that these price increases are largely driven by external factors rather than domestic demand, including electricity supply issues, costs associated with alternative power generation, and rising import prices that are passed on to consumers. Additionally, the recent depreciation of the Rand following Donald Trump’s re-election may have some short-term effects on its value.

On a positive note, the US Federal Reserve recently lowered its interest rate by 25 basis points to stimulate the US economy. This move could benefit South Africa, allowing the South African Reserve Bank (SARB) and its Monetary Policy Committee (MPC) to potentially lower local interest rates more aggressively than originally planned.

With moderating inflation, better-than-expected economic growth, improved electricity supply, and positive market sentiment, the SARB is likely to consider cutting interest rates further in November 2024. Such a reduction might boost demand and ease pressure on household finances, contributing to stronger economic growth in South Africa than previously anticipated for 2024 and into 2025.

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Gross Operating Surplus

Company is crucial for investors and the government, influencing investment potential and tax revenue. The latest data from Statistics South Africa shows a 2.9% quarterly decrease in Gross Operating Surplus (GOS) but a 4.5% annual increase, indicating profitability growth. Notably, sectors like mining and transport exceeded inflation rates, signaling positive market sentiment and potential for increased investment in South Africa over the medium to long term.

South African Economic Performance

South’s economy unexpectedly contracted by 0.3% in Q3 2024, with six out of ten sectors growing. The agricultural sector significantly declined by 28.8%. Positively, manufacturing and finance showed growth, contributing to overall resilience. However, consumer demand and elevated prices in the economy remain concerns, while expected growth for 2024 is estimated at just 0.7%. Addressing policy clarity and structural reforms could enhance business confidence and stimulate growth.

Private Sector Credit Extension (PSCE)

In October 2024, credit extended by South African financial institutions rose by 4.3%, with increasing demand in most categories, despite remaining low overall. Recent interest rate cuts totaling 50 basis points may enhance property and fixed asset purchases in 2025 as consumers gain more disposable income, potentially boosting overall demand.

Producer Price Inflation

Producer Price Inflation in South Africa saw a deflation of 0.7% in October 2024, exceeding analysts’ expectations. This decline was driven by significant price drops in coke, petroleum, and related products. While overall inflation may remain low in the short term, rising costs for intermediate goods and administered prices raise concerns. Persistently low inflation could lead to interest rate cuts, potentially boosting consumer and business demand in 2025.

Another 25 Basis Point Interest Rate Cut

The South African Reserve Bank cut the interest rate by 25 basis points, contrary to some expectations for a larger reduction. Inflation remains within the target range of 3% to 6%, and positive signs for growth include rising confidence and stable electricity supply. Despite subdued manufacturing production, increased disposable income supports demand, contributing to a gradual economic recovery.
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