Sanisha Packirisamy, Economist, Tshiamo Masike, Economic Analyst and Herman van Papendorp, Head of Investment Research & Asset Allocation at Momentum Investments.

Momentum Investments have released their report based on ‘Surprising inflation spike to 5.9% y/y in October led by higher fuel and food prices’ prepared by the Momentum Investments Macro Research Team.

Please see below, a summary of highlights from the team, as well as the full research note attached.

Highlights

• Statistics South Africa (Stats SA) published a jump in the headline rate of inflation to 5.9% year-on-year (y/y) in October 2023 from 5.4% y/y in September. The main contributors were food and non-alcoholic beverages (NAB), housing and utilities as well as transport.
• The acceleration of transport inflation was anticipated but the rate of 7.4% y/y was above expectations. Food inflation climbing to 8.8% y/y after six months of moderation was unexpected and is a potential risk to the inflation trajectory.
• Core inflation (which excludes fuel, food and energy prices) dropped to 4.4% y/y in October, slightly down from 4.5% y/y recorded in September.
• According to the Central Energy Fund (CEF), the price of both grades of petrol dropped by R1.78/l and by R0.85/l for diesel (0.05%) in November after two consecutive months of large price hikes. Early data suggests a further drop of approximately R1.08/l for petrol (inland 95) and R2.23/l for diesel (inland 0.05%) in December. This is anticipated to reduce the inflation rate for households, particularly those in the upper expenditure deciles that have a higher transport weighting in their respective consumer baskets.
• Brent crude oil averaged US$90.8/bbl in October, lower than the Energy Information Administration’s (EIA) forecast of US$93/bbl and the actual price of US$93.7 bbl in September. This is despite the ongoing Israel-Gaza war.
• In a Cape Business News article, the chief executive officer (CEO) of the SA Poultry Association (SAPA) alleviated fears surrounding the Avian flu outbreak by stating that despite the shortages and price increase of eggs as well as the expected shortages of chicken meat, it is not a crisis and preventative measures have been applied.
• As published by the Crop Estimates Committee (CEC), producers intend to plant 4.5 million hectares of summer crops in 2024, representing a 2.9% increase from 2023 and a 1.7% increase from the total planted area in 2022. The larger area intentions for 2024 expressed for the various crops are, to an extent, reversing the decreases implemented in 2023.
• Global food prices proxied by the United Nations (UN) Food and Agricultural Organisation (FAO) Food Price Index decreased slightly in October 2023 on a month-on-month (m/m) basis.
• Although October’s inflation print exceeded expectations, we expect the blip to be temporary with lower fuel inflation driving down the headline figure in the coming releases. Together with weak demand-pull inflation pressures, no sign of a wage-price spiral and a pause by global central banks to assess the impact of previous macro research and asset allocation | cpi | 22 november 2023 Page 2 of 7 monetary policy tightening, we expect the SA Reserve Bank (SARB) to keep the repo rate constant at 8.25% in the last interest rate setting meeting for 2023 (23 November).
• While events which posed potential currency and sovereign premium risks (BRICS summit, African Growth and Opportunity Act (AGOA) summit and the Medium-Term Budget Policy Statement (MTBPS)) have occurred without significant market implications, risks to the inflation outlook remain and inflation expectations are still uncomfortably high. Therefore, we maintain our stance of rates remaining restrictive with a possibility of the first repo rate cut in the second quarter of 2024, at the earliest.

ENDS