Turning the corner

Rate cut on the way

Annual consumer price inflation edged lower in August, to 4.4% year-on-year, compared to 4.6% in July. This is the first time since April 2021 that inflation has come in below the SARB’s 4.5% target level. With inflationary pressures steadily receding, the Reserve Bank is highly likely to lower the repo rate when it’s Monetary Policy Committee meets later this month.

• Housing and Utilities, which account for a quarter of the CPI basket was the largest contributor to inflation, adding 1.1%. Among its underlying components, the largest price increase came from electricity, which has gone up 11.5% over the past year. 
• The Miscellaneous Goods and Services category (14.8% of the CPI basket), remains a significant contributor to current inflation, contributing 1.0% this period. 
• Food and Transport, which together make up 31.5% of the CPI basket, contributed a combined 1.3% to annual CPI inflation, but encouragingly price pressures in both categories having eased substantially.

Looking ahead, the current rate of inflation should offer the SARB some peace of mind. Although they are still concerned that inflation expectations remain elevated, there is now less argument for maintaining above-neutral rates. The market expects both the US Fed and the SARB to cut rates this month, joining the growing cohort of global central banks that have already eased policy this year. The debate now revolves around the pace and magnitude of future rate cuts, which ultimately will help support economic growth going forward.