South Africa's inflation rate drops to 3.6%: What it means for consumers
Food and non-alcoholic beverages continue to push inflation higher.
Image: File
October’s inflation rate came out at 3.6% - an increase from the September year-on-year rate of 3.4%.
Even though the rate was lower than anticipated, with the price of goods continuing to accelerate on a compound rate, the outlook is bleak for South Africans.
A Reuters poll conducted ahead of the Statistics South Africa data released showed expectations of 3.7%.
The outlier on inflation was Lara Hodes, Investec economist, who was more positive and predicted a year-on-year increase in inflation from 3.4% to 3.5%.
Andre Botha, head of execution, TreasuryONE, told IOL that inflation remains mostly contained, yet “the mild uptick from 3.4% last month shows upward pressure is not entirely gone”.
Various economists anticipate that the rate will continue to increase this year, peaking at 4% before starting a downward trend.
Botha added that the slightly softer-than-expected interest rate “supports the case for a cautious rate cut”.
The good news is that economists broadly expect an interest rate cut at next week's South African Reserve Bank meeting.
That news will be announced next Thursday.
On an annual basis, which allows for smoothing of overall monthly inflation, this is how much a R1 000 trolley has increased over the past 25 years.
Image: ChatGPT
To put all this in context: a trolley of groceries that cost you around R1 000 at the start of the century will now cost R3 733, according to a website set up by Renier Crause.
That, the site indicated, is a compound increase of 277%.
Smoothing the rate and using a yearly average takes the basket to R3 150.
Even before the figures were published this morning, Benay Sager, executive head of DebtBusters, said "electricity costs 165% more than nine years ago”.
Petrol is 80% higher than nine years ago, contributing to cumulative inflation of 51%, Sager said.
These varying figures do, however, depend on what you were putting in your shopping trolley. IOL’s number of R1 000 was based on a snap poll.
October’s year-on-year cost of living increase was pushed higher by housing and utilities as well as food and non-alcoholic beverages.
The good news is that interest rates may come down next month as SARB seeks to contain inflation around its new 3% band.
Wichard Cilliers, head of Market Risk at TreasuryONE, said there is a 90% probability of a 25-basis point cut – or 0.25 percentage points off a lending rate that is at 10.5%.
Hodes expected a similar outcome. However, she also cautioned that “the central bank may opt to leave rates on hold once again”.
Finance Minister Enoch Godongwana said, during last Wednesday’s tabling of the mini budget that the inflation target had been moved to 3%.
This is instead of the 3% to 6% framework that had been in place for 25 years.
Godongwana's announcement immediately bolstered the rand as it is set to bring long-term relief to millions of South Africans.
Should interest rates be cut by an anticipated 0.25 percentage points, homeowners owning a R2 million house with a 20-year mortgage period save an additional R300 a month, BetterBond’s data showed.
This will, if that saving is plugged back into the bond, cut the term by 42 months – three-and-a-half years.
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