Lerato Mbhiza
South Africa’s inflation rate rose to a three-month high in September on the back of higher food and energy prices, maintaining the case for the central bank to keep borrowing costs higher for much longer.
Annual inflation accelerated to 5.4% from 4.8% in August, Pretoria-based Statistics South Africa said on its website. The figure matched the median of 12 economists’ estimates in a Bloomberg survey.
Core inflation, which excludes food and energy costs, slowed to 4.5% last month from 4.8% in August, compared with a 4.7% reading expected by economists.
Tuesday’s data showed that egg prices registered a monthly increase of 0.3% after a decline of 0.4% in August.
“Prices for poultry-related products deserve a close watch in the coming months to gauge the impact of the avian flu outbreak,” StatsSA said in a note accompanying the data.
Frank Black more, lead economist at KPMG warned that rates will stay higher for longer. “The probability of a reprieve in the interest rate in the November meeting will depend largely on October’s inflation number.”
The South African Reserve Bank, which held interest rates steady at 8.25% at its last policy meeting in September, aims to anchor inflation around the midpoint of its 3% to 6% target range.
Its next rate decision will be announced on 23 November , one day after the October inflation data are released.
In its Monetary Policy Review, released on Tuesday, the South African Reserve Bank noted that in line with the resurgence in crude prices local headline inflation is expected to trend broadly sideways into early 2024.
It is forecast to average 5.9% in 2023, before declining to 5.1% in 2024.
The Reserve Bank has hiked borrowing costs by a cumulative 475 basis points since November 2021. The repo rate is currently in restrictive territory at 8.25%, with Reserve Bank governor Lesetja Kganyago recently underlining that the central bank’s fight against inflation is not yet over.
Last month, the SARB’s Monetary Policy Committee kept the repo rate unchanged at 8.25% despite warning that headline inflation is expected to rise somewhat in the coming months.
Stubbornly high inflation has seen central banks around the world raise interest rates to unprecedented levels in an effort to keep prices stable.
“Inflation has been more persistent than initially thought, prompting central banks to say that they are going to keep policy tight for longer,” Kganyago said.
“But what we have seen recently has been that headline inflation has continued to decelerate but remains well above desired levels, requiring many advanced economy central banks to continue to consider even further raising “.
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