Key Takeaways:
- Headline inflation rose to 4.4% in August from 4.3% in July.
- The increase was below the 4.5% average forecast in a Reuters poll.
- Most economists expect the Reserve Bank to raise its policy rate by 25 basis points to 7.25%.
South Africa’s annual inflation rate rose slightly to 4.4% in August, adding to price pressures ahead of the South African Reserve Bank’s interest-rate decision on Wednesday.
Statistics South Africa released the inflation data in Pretoria on Wednesday, hours before the Reserve Bank’s Monetary Policy Committee was due to announce its rate decision at about 3 p.m. local time.
“This has no impact on the MPC decision that we will hear later today. The MPC concluded its forecasting and modelling runs last week already,” said Johann Els, chief economist at PSG Financial Services.
Housing and transport drive inflation
The increase in headline inflation was mainly driven by housing and utilities, transport, and insurance and financial services, according to Statistics South Africa.
Housing and utilities recorded annual inflation of 5.2% and contributed 1.3 percentage points to the headline rate. Transport inflation was 8.8%, contributing 1.2 percentage points, while insurance and financial services rose 5.7% and contributed 0.6 percentage points.
Consumer prices were unchanged between July and August on a monthly basis, showing that the annual increase was relatively modest.
Food and non-alcoholic beverage inflation also increased for the first time in nine months, rising to 1.1% from 0.9% in July. Statistics South Africa said higher annual rates were recorded across several food categories, including fish and seafood, dairy products and eggs, vegetables and cold beverages.
Transport inflation, however, eased slightly from 8.9% in July. Annual fuel inflation slowed to 20% from 20.6%, while petrol prices fell 2% between July and August. Diesel prices increased 3.1%.
Economists still expect a rate hike
Annual core inflation, which excludes volatile items such as food and energy, fell to 4.1% in August from 4.2% in July.
Despite the softer-than-expected inflation reading, most economists expect the Reserve Bank to raise its monetary policy rate by 25 basis points to 7.25% on Wednesday.
The Reserve Bank targets inflation at 3% and places greater emphasis on the expected path of inflation than on individual past readings.
The August data also comes after the central bank surprised markets in July by leaving its policy rate unchanged. The decision kept the rate at 7%, with the bank saying its policy stance was restrictive enough to bring inflation back to target within two years.
