South African inflation hits 5-month high before rate decision
In October, South African annual inflation reached a five-month high, rising to 5.9% compared to 5.4% in September, according to Statistics South Africa. This uptick is unlikely to prompt the central bank to raise interest rates at its upcoming meeting on November 23, as the acceleration is expected to be temporary.
The inflation rate exceeding the median estimate of 5.6% by 19 economists in a Bloomberg survey suggests some unexpected pressure. However, factors such as softer oil prices and the appreciation of the rand against the dollar since the last meeting in September may contribute to a potential easing of price growth in the coming months.
Additionally, core inflation, which excludes food and energy costs, decelerated to 4.4% from 4.5% in September. These factors could influence the central bank's decision on whether to adjust interest rates.
The South African Reserve Bank (SARB) has maintained its main interest rate unchanged in its last two policy meetings after a series of 10 consecutive hikes. The central bank has emphasized its desire to witness inflation consistently around the midpoint of its target range before considering any rate cuts. Following the higher-than-expected inflation reading on Wednesday, analysts at Capital Economics suggest a growing risk that policymakers might opt to delay the initiation of monetary easing until much later in 2024. While the current expectation is for the first rate cut to occur early next year, with rates potentially decreasing from 8.25% to 7.50% by the end of 2024, the analysts note that risks lean towards the easing cycle starting even later than anticipated.