South African inflation – what to expect

Absa forecasts that South Africa’s headline inflation has slowed for the second month, but the Bureau for Economic Research (BER) expects it to be steady.

Statistics South Africa (Stats SA) will release the consumer price index (CPI) data for September at 10:00 on Wednesday.

Absa forecasts that headline inflation slowed for the second successive month to 7.4% year-on-year in September from 7.6% in August.

This forecast is mainly based on further easing of fuel inflation to 34.0% year-on-year in September from 43.2% year-on-year in August. It shaves 0.4% off headline inflation.

However, the bank expects this to be partly offset by higher food inflation, which its forecasts to rise to 11.8% in September – up from 11.3% in August.

“Meanwhile, we project that core inflation rose by 0.1% to 4.5% year-on-year in September partly due to higher housing costs and medical health insurance,” it said.

The BER, in comparison, projects headline CPI to increase by 0.2% month-on-month, with the year-on-year rate steady at 7.6%. This is in line with the Bloomberg consensus

This September release will contain more new price information than usual. The CPI release will include the quarterly survey of:

• Housing costs, with a weight of 16.5% in the CPI basket
• Domestic workers’ wages, with a weight of 2.5% in the CPI basket
• Taxi, train and bus costs, with a weight of 2.2% in the CPI basket

It will also include an out-of-cycle survey of medical health insurance with a weight of 7.1%.

This introduces higher-than-usual risks to our core CPI inflation forecast.

Economic growth

Economic growth for the third quarter will also come into focus this week when Stats SA publishes the domestic trade sector data for August.

On Wednesday at 13:00, Stats SA will publish the retail sales data for August.

Over the last quarter, consumers’ disposable incomes came under pressure because of higher interest rates.

However, Absa believes that lower fuel prices in August, improved trading hours amid reduced load shedding, and a low base should deliver a monthly improvement in sales volumes.

“Therefore, we forecast that the volume of retail sales grew 0.6% month-on-month in August after falling by a cumulative 2.0% from May to July.

This translates to a 5.8% year-on-year increase in August compared with 8.6% in July.

On Thursday at 10:00 and 11:30, Stats SA will publish the August wholesales and motor trade sales data, which should provide further clues on the performance of the broader domestic trade sector.