Headline inflation accelerated to 5.4% in September, from 4.8% in August. The print was in line with the consensus prediction but slightly below our 5.5% expectation. Monthly headline inflation was 0.6%, driven mostly by fuel (contributing 0.4ppt). Core items as well as food and non-alcoholic beverages (NAB) added 0.1ppt each.
Core inflation was 0.2% m/m and 4.5% y/y, down from 4.8% previously. Explaining most of the monthly pressure was housing, which lifted by 0.6% m/m and contributed 0.1ppt. The rest of the pressure is explained by smaller contributions by other core items. The divergence between headline and core movements highlights the resurgence in volatile items.
Average fuel prices lifted by 7.6% m/m and prices were back in inflationary territory, lifting by 1.5% compared to September 2022 after recording more than -12% y/y on average over the previous three months.
Food and NAB inflation tilted upwards to 8.1% y/y, from 8.0% previously, and prices lifted by 0.6% between August and September. Meat, NAB, and cereals explained 75% of the monthly pressure, and only vegetables contributed negatively.
Outlook
Taking these outcomes into account suggests that headline inflation will lift to 5.6% in October. Headline inflation will experience further upward monthly pressure from fuel prices following the over R1 per litre lift in petrol and near R2 per litre lift in diesel prices. Furthermore, the avian flu outbreak that has primarily affected the supply of eggs and will likely spill over to chicken should keep food inflation elevated. Unfortunately, an undervalued rand should continue to be a source of upward pressure to broader imported inflation. While headline disinflation should be volatile given these supply-side forces, the passthrough to core inflation should be limited by mounting consumer stress. Overall, we anticipate that headline inflation will average around 6.0% this year, before falling towards target more firmly in 2026.
The latest IMF forecasts show global inflation falling from 8.7% last year to 6.9% this year and 5.8% in 2024. However, inflation projections were lifted by 0.1ppt and 0.6ppt in 2023 and 2024, respectively, indicating that price pressures are expected to be more persistent than earlier expectations. These adjustments are even worse in developing markets, where inflation is expected to average 8.5% in 2023 and 7.8% in 2024. This supports monetary policy remaining restrictive, with upward risks to interest rates should prices lift further above central bank targets. In addition, fiscal vulnerabilities in emerging markets remain a concern, and could adversely affect funding availability and weigh on exchange rates. In this context, there is a strong likelihood that the “higher for longer” theme prevails.
The October inflation print is scheduled for release on 22 November. The relatively major periodical surveys conducted in October are on funeral expenses and insurance (2.28%), as well as TV licences and subscriptions (1.02%).
Source: Stats SA, FNB Economics
