South Africa’s September CPI temporarily breaches the 5% level

September CPI printed in line with our expectations, at 5.1% y/y from 4.8% in August, and gained 0.5% m/m. The jump above 5% was largely anticipated by the market given the 67c increase in the fuel price last month. Petrol jumped 12.2% y/y from 5.7% the previous month, while transport increased 5.6% y/y from 3.9% in August.

Food and non-alcoholic beverage inflation moderated to 5.4% y/y, with bread and cereal prices contracting -2.8%. Meat prices, which rose 15.6%, continue to climb, and the outbreak of avian flu could push out the peak by a few months. Housing and utilities inflation expanded 4.9% y/y from 4.5% in August, with both actual rental prices increasing 5.7%. We expect the above 5% print to be temporary owing to base effects, and expect October CPI to dip just below the 5% level. Overall, weak economic growth, low consumer and business confidence and stretched consumers means there is simply not enough demand to spur inflation higher.

Despite core inflation remaining benign at 4.6% y/y, we think the scope for further rate cuts is diminishing, and expect the Reserve Bank to keep rates unchanged at the November MPC. We think it is likely that the bank will wait to let much of the event risk (MTBPS, rating agency assessments, Eskom tariff application, ANC November elective conference) play out before moving on rates, rather than lowering in November only have to reverse the cuts should event outcomes stoke fears of higher inflation.