The consumer price index (CPI) for October 2021 is 5.0% – unchanged from the 5.0% recorded in September, despite a sharp increase in fuel prices.

Statistics SA data show that fuel prices were 23% higher in October than the year before.

The October number was slightly lower as the consensus forecast of 5.1%, according to a Bloomberg poll among economists.

The monthly inflation rate also held steady, at 0.2%.

A loaf of brown bread, for example, was on average 36c more expensive in October compared with September, increasing to R13.59 from R13.23. But maize meal prices cooled.

For the year to October, food and non-alcoholic beverage inflation was 6.1%, smaller than the annual increases in September (6.6%) and August (6.9%).

Bread and cereals inflation slowed over the year after reaching a 12-month high of 5.1% in January, decreasing to 3.0% in October. Spaghetti and macaroni were cheaper in October than they were in January.

Annual meat inflation also hit a three-month low of 9.1% in October – despite average polony prices being 16% higher than to a year ago, and frozen chicken pieces 13% pricier over the same period.

Overall inflation was cooled by lower communication costs, with telecommunication equipment (including cellphones) almost 13% cheaper than a year ago.

Momentum Investments economist Sanisha Packirisamy says the steady inflation rate reflects moderate domestic demand, past currency strength, low services inflation and modest wage pressures.

She noted that only three out of the 28 inflation categories experienced inflation in excess of 6%. These categories included food, private transport and electricity.

“Although higher fuel costs should drive inflation higher in the near term, services constitute around half of SA’s inflation basket and lower price pressures in this component of the basket (including medical aid tariffs and rental inflation) will likely continue to provide an anchor for headline inflation in 2022.”

Interest rate hike this week?

The SA Reserve Bank’s Monetary Policy Committee will take the latest inflation numbers into account as it deliberates on interest rates this week.

On Thursday, it will announce its decision on rates, with some economists expecting a hike – the first since November 2018.

But Packirisamy expects that contained inflation could mean that the first rate hike may only come in the first quarter of 2022.

“We believe the medium-term profile for inflation should afford the SARB additional time before commencing the interest rate normalisation cycle and adhere to our view for the first interest rate hike to take place in the first quarter of 2022. Nevertheless, we acknowledge that risks to an earlier (November 2021) hike have increased. In light of higher short-term inflation pressures resulting from food and fuel, the SARB may opt to act pre-emptively to keep inflation expectations anchored.”

The MPC has kept the repo rate steady at 3.5% since July 2020.

SOURCE:

https://www.news24.com/fin24/economy/inflation-rate-flat-at-5-for-october-despite-fuel-price-hikes-20211117